04 KALEIDOSCOPE ERGO Monday, November 24, 2008

SIPly judicious?
PRADEEP YUVARAJ Why is it so great?

Mini quiz
Apart from the above benefits,

“I
want to invest in an SIP.” the best use of an SIP is its ability
We often hear that to produce better results due to
from people who invest Rupee Cost Averaging (RCA). RCA
in mutual funds. But is the ability of an investment to Winner gets a free Personal Finance Health Check up from Finerva.
what exactly is an SIP? And why is overcome the ups and downs of 1. What is the maximum Percentage of Basic pay up to which HRA
it so interesting? the market and thus averaging can be claimed?
First things first: An SIP (Syste- out the returns. Choice:25%, 40%, 50%, 30%
matic Investment Plan) is a fancy For example, if you invested Rs. 2. How many life insurance companies are there is India?
term used for investments in mu- 50,000 on January 1, 2008 at the Choice:45, 16, 50, 21
tual funds. What it basically rate of Rs. 100 per unit, you would Send your answers to finergo@goergo.in or SMS your answers to
means is investing fixed amounts have gotten 500 units. Suppose 90470 91910. For example if you choose A as the answer to question
in mutual funds at regular inter- on November 1, the unit value is 1 and B as the answer to question 2 type it as 1A2B and send it.
vals (monthly), when investing 110 then your investment is
large amount at one go is not worth Rs. 55,000 and if it’s Rs. 90
possible. per unit then your investment is Thus we can see that the mar-
So for a small investor, it gives worth 45,000. SIP gives us a way ket has gone from a start of Rs.
the benefit of investing in the to avoid the second scenario. As- 100 per unit to a high of 110 per
stock market indirectly giving all sume instead of investing Rs. unit and a low of 86 per unit. Still
the benefits of a mutual fund and 50,000 at one go; you decide to the investor has earned more
at the same time not biting into invest Rs. 5,000 every month. So units than he would have done
his monthly income too much. on January 1, you would get 50 had he invested Rs. 50,000 on Ja-
You can join a SIP for as low as units. And so on as shown in nuary 1. At this point we must al-
Rs.500 a month. table. so understand that this might not
hold true during extreme
conditions.
Amount Unit Value Units We realise that an SIP not only
Date (assumed for gives us to opportunity to invest
invested purchased
example) small amounts but by means of
Rupee Cost Averaging gives us a
1-Jan-08 5000 100 50 chance to get better returns or
correspondingly minimize our
1-Feb-08 5000 103 49 loss in case of negative markets.
So what are you waiting for? SIP
1-Mar-08 5000 105 48 it. I am sure most people have un-
1-Apr-08 5000 108 46 derstood the real benefit of an SIP
in the current market scenario.
1-May-08 5000 110 45 The number of units on your Fo-
lio statement would surely have
1-Jun-08 5000 100 50 shown a rise. Albeit it must be
1-Jul-08 5000 95 53 added that the value might be
less. Be patient. If you have been
1-Aug-08 5000 93 54 investing in a SIP, please contin-
ue doing so as you get high value
1-Sep-08 5000 90 56 units at dirt cheap when the mar-
1-Oct-08 5000 86 58 kets are low. ■
(The author is Director
TOTAL 50000 990 508 –Education and can be mailed at
pradeepvy@finerva.com)