Definition of 'Systematic Investment Plan - SIP'

This is a plan where investors make regular, equal payments into a mutual fund, trading account or retirement account, such as a 401k. By using a systematic investment plan (SIP), investors are benefitting from the long-term advantages of dollar-cost averaging and the convenience of saving regularly without taking any actions except the initial setup of the SIP.

Investopedia explains 'Systematic Investment Plan - SIP'

Read more: http://w Dollar-cost averaging involves buying a fixed-dollar amount of a security regardless of its price. Therefore, shares are bought at various prices over time and the average cost per share of the security will decrease over time. Dollar-cost averaging lessens the risk of investing a large amount of money into a security. In addition to SIPs, many investors reinvest dividends received from their holdings back into purchasing more stock, called dividend reinvestment plans (DRIPs). Read more: http://www.investopedia.com/terms/s/systematicinvestmentplan.asp#ixzz1vDIsQT6Lww. investopedia.com/terms/s/systematicinvestmentplan.asp#ixzz1vDGwrwia

Systematic Investment Plan is an approach to investing within managed investments which involves investing a set of amount at regular intervals rather than investing a larger lump sum amount in one shot. By investing this way you are not attempting to capture the highs and lows of the market but rather the cost of your investment is averaged over a period of time. The essence of SIPs is that when the markets fall investors automatically acquire more units. Likewise they acquire lesser units when the market rises. This means that you buy less when the price is high whereas you buy more the price is low. Hence the average cost per unit drops down over a period of time. Click here for more details. Consider the following example of two rational people who each invest the same amount of money into a managed fund over a period of time. Investor A decides to invest Rs. 10000 now. Investor B decides to invest by way of an SIP - Rs. 1000 each month.

Month

Investor A (In Rs.)

Units Purchased

Investor B (In Rs.)

Units Purchased

Unit Price

1 2 3

10000 0 0

1000 0 0

1000 1000 1000

100 105.3 114.3

10 9.5 8.8

4 5 6 7 8 9 10

0 0 0 0 0 0 0

0 0 0 0 0 0 0 1000

1000 1000 1000 1000 1000 1000 1000

115.6 118.3 125 117.6 107.5 95.2 90.9

8.7 8.5 8 8.5 9.3 10.5 11 Up to 50 days

Total Rs.10000 Investment Total Value Rs.11000

Rs. 10000 1089.8 Rs. 11988

The table shows that Investor B is in a better position by investing through a Systematic Investment. It shows that at the end of the investment period of 10 months Investor A who made an Lump sump investment has 1000 units in his portfolio has a market value of Rs. 11000. Whereas, Investor B who made investments through an SIP has 1090 units in his portfolio which has a market value of Rs. 11988.

A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help investors save regularly. It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a mutual fund. The minimum amount to be invested can be as small as 100 and the frequency of investment is usually monthly or quarterly. [edit]How

an SIP works

An SIP allows you to take part in the stock market without trying to second-guess its movements. It is also known as dollar cost averaging. An SIP means you commit yourself to investing a fixed amount every month. Let's say it is 1,000.

When the Market price of shares fall, the investor benefits by purchasing more units; and is protected by purchasing less when the price rises. Thus the average cost of units is always closer to the lower end.) { NAV : Net Asset Value , or the price of one unit of a fund. Can be computed as follows : NAV = [ market value of all the investments in the fund + current assets + deposits liabilities ] divided by the number of units outstanding.} Date NAV Approx number of units you will get at 1000

Jan 1 10

100

Feb 1 10.5 95.23

Mar 1 11

90.90

Apr 1 9.5

105.26

May 1 9

111.11

Jun 1 11.5 86.95

Within six months, you would have 5,89.45 units by investing just 1,000 every month. Over the long run, you may make money or lose Let's say you invested in a Mutual Fund unit during the dotcom and tech boom. Say you began with 1,000 and kept investing 1,000 every month. This would be the result: Investment period Mar 2000 ? Mar 2005

Monthly investment 1,000

Total amount invested

61,000

Value of investment of Mar 7, 2005 1,09,315

Return on investment 23.87%

Had you bought the units on March 13, 2000 at 10.88 per unit (that was the NAV then), you would have lost because the NAV was just 7.04 on March 7, 2005. But because you spaced out your investment, you won. Conversely if the market had trended higher from the day you decided to start investing, you would lose out on an opportunity. This would happen as your subsequent purchases will get you less number of units for the same amount. Systematic Investment Plan can help you to be disciplined (if you need discipline) but not solve your market timing issues. The Investment advisor or the Mutual Fund has a vested interest in pitching this idea to you as once you invest all your future investment would also accrue to them effortlessly. [edit]How

an SIP scores

It makes you disciplined in your savings. Every month you are forced to keep aside a fixed amount. This could either be debited directly from your account or you could give the mutual fund post-dated cheques. As you see above, it helps you make money over the long term. Since you get more units when the NAV drops and fewer when it rises, the cost averages out over time. So you tide over all the ups and downs of the market without any drastic losses. Also, a number of mutual funds do not charge an entry load if you opt for an SIP. This fee is a percentage of the amount you are investing. And if you do not exit (sell your units) within a year of buying the units, you do not have to pay an exit load (same as an entry load, except this is charged when you sell your units). If, however, you do sell your units within a year, you would be charged an exit load. So it pays to stay invested for the long-run. The best way to enter a mutual fund is via an SIP. But to get the benefit of an SIP, think of at least a three-year time frame when you won't touch your money. Of course you would lose money if your units lost value over time. What most SIP Mutual funds don't tell you is that they recover their fees as monthly charges by selling your units, so while you are buying more units when the market is down, more of your units are also being sold to fund the monthly charges of the Mutual fund. Also the Bid and Offer of the

Mutual Fund is around 7% and this is the front load or expense you pay for buying the units each month. Also sometimes the Mutual fund will have annual fee charges. In spite of the above drawbacks the retail investors' benefit in the long term horizon of 58 years is enormous. Only make sure that you can switch your funds from stock market to money market at short notice when the markets are really in a correction phase to safeguard the profits which you have made when the market was in a booming phase. This is easier said than done. SIP will work best if markets trend lower after your investment. SIP performance would be average if markets trade in a range. SIP will perform worst if markets trend higher. Another Benefit of investing in mutual funds via SIP is you benefit from Power of Compounding.[1]

All About SIP Systematic Investment Plan

Author: admin | Date: May 8th, 2012

Since the time equity markets have been engulfed by volatility, the most frequently heard advice is that best way to invest in equities is invest via the systematic investment plan route for long-term. When an investor chooses to invest in mutual funds via an SIP, he makes investments (usually) in smaller denominations at regular intervals of time rather than making a single lump sum investment. By doing so investor benefits from the investing principle known as Rupee Cost Averaging. It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a mutual fund. SIP allows you to invest a fixed amount regularly, so when funds NAV is more you get less units and when funds NAV is higher you get less units, so over a longer time frame, SIP will lower the average purchase cost of an investment.

The above table shows that when invested through SIP, the average purchase price works out as low at 9.836, compared to a lump sum investment of Rs. 10. Another Benefit of investing in mutual funds via SIP is you benefit from Power of Compounding As an investor, when you extend the investment period, you can earn profit on your current profit, and accumulate more wealth. This reiterates the fact that investing fresh capital at periodic intervals raises the accumulated investment. You can start investing in SIP with amount as small as Rs. 100 per month.

Systematic Investment Plan (SIP)

HDFC MF SIP is similar to a Recurring Deposit. Every month on a specified date an amount you choose is invested in a mutual fund scheme of your choice. The dates currently available for SIPs are the 1st, 5th, 10th, 15th, 20th and the 25th of a month. Youll be amazed to learn about the many benefits of investing through HDFC MF SIP. Click Here for Scheme Wise Details for SIP Benefit 1 Become A Disciplined Investor Being disciplined - Its the key to investing success. With the HDFC MF Systematic Investment Plan you commit an amount of your choice (minimum of Rs. 500 and in multiples of Rs. 100 thereof*) to be invested every month in one of our schemes. Think of each SIP payment as laying a brick. One by one, youll see them transform into a building. Youll see your investments accrue month after month. Its as simple as giving at least 6 postdated monthly cheques to us for a fixed amount in a scheme of your choice. Its the perfect solution for irregular investors.
*Minimum amounts may differ for each Scheme. Please refer to SIP Enrolment Form for details.

Benefit 2 Reach Your Financial Goal Imagine you want to buy a car a year from now, but you dont know where the downpayment will come from. HDFC MF SIP is a perfect tool for people who have a specific, future financial requirement. By investing an amount of your choice every month, you can plan for and meet financial goals, like funds for a childs education, a marriage in the family or a comfortable postretirement life. The table below illustrates how a little every month can go a long way.
Monthly Savings - What your savings may generate

Savings per month (for 15 years) 5000 4000 3000 2000 1000

Total amount invested (Rs. in Lacs) 9.0 7.2 5.4 3.6 1.8

Rate of return 6.0% 14.6 11.7 8.8 5.8 2.9 8.0% 17.4 13.9 10.4 7.0 3.5 10.0% 20.9 16.7 12.5 8.3 4.2 (rupees in lacs, 15 years later)*

*Monthly instalments, compounded monthly, for a 15-year period. Disclaimer: The illustration above is merely indicative in nature and should not be construed as investment advice. It does not in any manner

imply or suggest performance of any HDFC Mutual Fund Scheme(s). Please read Risk Factors.

Benefit 3 Take Advantage of Rupee Cost Averaging Most investors want to buy stocks when the prices are low and sell them when prices are high. But timing the market is timeconsuming and risky. A more successful investment strategy is to adopt the method called Rupee Cost Averaging. To illustrate this well compare investing the identical amounts through a SIP and in one lump sum. Imagine Suresh invests Rs. 1000 every month in an equity mutual fund scheme starting in January. His friend, Rajesh, invests Rs. 12000 in one lump sum in the same scheme. The following table illustrate how their respective investments would have performed from Jan to Dec:
Sureshs Investment Rajeshs Investment

Month Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04

NAV 9.345 9.399 8.123 8.750 8.012 8.925 9.102 8.310 7.568 6.462 6.931 7.600

Amount 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000

Units 107.0091 106.3943 123.1072 114.2857 124.8128 112.0448 109.8660 120.3369 132.1353 154.7509 144.2793 131.5789

Amount 12000

Units 1284.1091

*NAV as on the 10th every month. These are assumed NAVs in a volatile market Disclaimer: The illustration above is merely indicative in nature and should not be construed as investment advice. It does not in any manner imply or suggest performance of any HDFC Mutual Fund Scheme(s). Rupee Cost Averaging neither ensures you profits nor protects you from making a loss in declining markets. Pleaseread Risk Factors.

As seen in the table, by investing through SIP, you end up buying more units when the price is low and fewer units when the price is high. However, over a period of time these market fluctuations are generally averaged. And the average cost of your investment is often reduced.

At the end of the 12 months, Suresh has more units than Rajesh, even though they invested the same amount. Thats because the average cost of Sureshs units is much lower than that of Rajesh. Rajesh made only one investment and that too when the per-unit price was high. Sureshs average unit price = 12000/1480.6012 = Rs. 8.105 Rajeshs average unit price = Rs. 9.345

Benefit 4 Grow Your Investment With Compounded Benefits

It is far better to invest a small amount of money regularly, rather than save up to make one large investment. This is because while you are saving the lump sum, your savings may not earn much interest. With HDFC MF SIP, each amount you invest grows through compounding benefits as well. That is, the interest earned on your investment also earns interest. The following example illustrates this. Imagine Neha is 20 years old when she starts working. Every month she saves and invests Rs. 5,000 till she is 25 years old. The total investment made by her over 5 years is Rs. 3 lakhs.Arjun also starts working when he is 20 years old. But he doesnt invest monthly. He gets a large bonus of Rs. 3 lakhs at 25 and decides to invest the entire amount. Both of them decide not to withdraw these investments till they turn 50. At 50, Nehas Investments have grown to Rs. 46,68,273* whereas Arjuns investments have grown to Rs. 36,17,084*. Nehas small contributions to a SIP and her decision to start investing earlier than Arjun have made her wealthier by over Rs. 10 lakhs.
*Figures based on 10% p.a. interest compounded monthly. Disclaimer: TheThe illustration above is merely indicative in nature and should not be construed as investment advice. It does not in any manner imply or suggest performance of any HDFC Mutual Fund Scheme(s). Please read Risk Factors.

Benefit 5 Do All This Effortlessly Investing with HDFC MF SIP is easy. Simply give us post-dated cheques or opt for an Auto Debit from your bank account for an amount of your choice (minimum of Rs. 500 and in multiples of Rs. 100 thereof*) and well invest the money every month in a fund of your choice. The plans are completely flexible. You can invest for a minimum of six months, or for as long as you want. You can also decide to invest quarterly and will need to invest for a minimum of two quarters. All you have to do after that is sit back and watch your investments accumulate. Please refer to the SIP Enrolment Form for terms and conditions before enrolment.
*Minimum amounts may differ for each Scheme.

Definition A program that allows an individual to have a set amount electronically transferred from one account to another at a specified frequency. Examples include stock and mutual fund reinvestment programs, defined contribution plans, mutual fund contribution programs, and automatic withdrawal plans. also called automatic investment plan. Read

more: http://www.investorwords.com/4856/systematic_investment_plan.html#ixz z1vDNHcBmZ

What type of a mutual fund is a SIP?"

I was taken aback by this question before I realised the person posing it thought a SIP was a type of mutual fund. Unfortunately, many new investors seem to be under this misconception. A Systematic Investment Plan is not a type of mutual fund. It is a method of investing in a mutual fund. Here's to coming to terms with it. How you can invest in a mutual fund There are two ways in which you can invest in a mutual fund. 1. A one-time outright payment If you invest directly in the fund, you just hand over the cheque and you get your fund units depending on the value of the units on that particular day. Let's say you want to invest Rs 10,000. All you have to do is approach the fund and buy units worth Rs 10,000. There will be two factors determining how many units you get. Entry load This is the fee you pay on the amount you invest. Let's say the entry load is 2%. Two percent on Rs 10,000* would Rs 200. Now, you have just Rs 9,800 to invest. NAV The Net Asset Value is the price of a unit of a fund. Let's say that the NAV on the day you invest is Rs 30. The best funds to invest in

So you will get 326.67 units (Rs 9800 / 30). 2. Periodic investments This is referred to as a SIP. That means that, every month, you commit to investing, say, Rs 1,000 in your fund. At the end of a year, you would have invested Rs 12,000 in your fund. Let's say the NAV on the day you invest in the first month is Rs 20; you will get 50 units. The next month, the NAV is Rs 25. You will get 40 units. The following month, the NAV is Rs 18. You will get 55.56 units. So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000. Here are some FAQs on the SIP 1. Is there a load? An exit load is a fee you pay the fund when you sell the units, just like the entry load is a fee you pay when you buy the units. Initially, funds never charged an entry load on SIPs. Now, however, a number of them do. You will also have the check if there is an exit load. Generally, though, there is none. Also, if there is an entry load, an exit load will not be charged. An exit load may be charged if you stop the SIP mid-way. Let's say you have a one-year SIP but discontinue after five months, then an exit load will be levied. These conditions will wary between mutual funds. 2. What is the minimum investment? If you do a one time investment, the minimum amount that you have to invest is Rs 5,000. If you invest via an SIP, the amount drops. Each fund has their own minimum amount. Some may keep it at least Rs 500 per month, others may keep it as Rs 1,000. Cool funds for a hot market How to invest in a mutual fund

3. How often does one have to invest?

It would depend on the fund. Some insist the SIP must be done every month. Others give you the option of investing once in three months or once in six months. They also give fixed dates. So you will get the option of various dates and you will have to choose one. Let's say you are presented with these dates: 1, 10, 20 or 30. You can pick any one date. If you pick the 10th of the month, then on that day, the amount you have decided to invest in the fund has to be credited to your mutual fund. 4. How must the payment be made? You can opt for the Electronic Clearance Service from your bank; this means the mutual fund will, as per your instructions, debit a certain amount from your account every month. Let's say you have a SIP of Rs 1,000 every month and you have chosen to invest in it on the 10th of every month.Under this option, you can instruct your mutual fund to directly debit your bank account of Rs 1,000 on the due date. If you don't have the required money in your account, then for that month, no units will be allocated to you. But, if this continues periodically, the mutual fund will discontinue the SIP. You need to check with each mutual fund what their parameters are. Alternately, you can give cheques to your mutual fund. In this case, they may ask for five Post Dated Cheques upfront with your first investment. Since these cheques are dated ahead of time, they cannot be processed till the date indicated. The importance of choosing the right funds

5. Must I state for how long I want the SIP? Yes. You will have to state whether you want it for a year or two years, etc. If, during the course of this period, you realise you cannot continue with the SIP, all you have to do is inform the fund 15 days prior to the payout. The SIP will be discontinued. You can continue to keep your money with the fund and withdraw it when you want. 6. Do all funds offer SIP? No. Liquid funds, cash funds and floating rate debt funds do not offer an SIP. These are funds that invest in very short-term fixed-return investments. Floating rate debt funds invest in fixed return investments where the interest rate moves in tandem with interest rates in the economy (just like a floating rate home loan).

All types of equity funds (funds that invest in the shares of companies), debt funds (funds that invest in fixed-return investments) and balanced funds (funds that invest in both) offer a SIP. 7. Tax implications Let's say you have invested in the SIP option of a diversified equity fund. If you sell the units after a year of buying, you pay no capital gains tax. If you sell if before a year, you pay capital gains tax of 10%. Let's say you invest through a SIP for 12 months: January to December 2005. Now, in February 2006, you want to sell some units. Will you be charged capital gains tax? The system of first-in, first-out applies here. So, the amount you invest in January 2005 and the units you bought with that money, will be regarded as the units you sell in February 2006. For tax purposes, the units that you sell first will be considered as the first units bought. 8. How will an SIP help? When you buy the units of a fund, you may do so when the NAV is really high. For instance, let's say you bought the units of a fund when the bull run was at its peak, leading to a high NAV. If the market dips after that, the value of your investments falls and you may have to wait for a long while to make a return on your investment. But, if you invest via a SIP, you do not commit the error of buying units when the market is at its peak. Since you are buying small amounts continuously, your investment will average out over a period of time. You will end up buying some units at a high cost and some units a lower price. Over time, your chances of making a profit are much higher when compared to an one-time investment. * This figure was originally published as Rs 1,00,000 and the error was pointed out by a reader on the Message Board.
Rachna C

Most volatile mutual funds

Talk

to

any

financial advisor about

equity

investing and

he

is

bound

to

recommend systematic investment plans (SIPs) to you. This is because it is extremely difficult for a lay investor to decide when to enter or exitthe market, as the market generally sways to a host of factors ranging from international to domestic or even politics.

The biggest advantage of SIP is that it removes the element of timing, says Vineet Arora, head-product and distribution, ICICI Securities. You continue to invest smallamounts over a long period of time, say, 5-10 years and you do not have to worry and the element of volatility is taken care of, says Sumeet Vaid, founder, Ffredom Financial Planners. SIPs give you the benefit of compounding and averaging your investments, says Jimmy A Patel, CEO, Quantum Mutual Fund. In short, SIPs help you average your investments and remove the element of market timing. So when the market falls, you get a higher number of units, while when the market rises, you get a lesser number of units, says Anup Bhaiya, MD and CEO, Money Honey Financial Services. Most fund houses specify dates of the month, which you can choose for your SIP investments. So once you have selected the scheme and the amount to invest, you could start your SIP. You can either write post-dated cheques, or, if that is tedious, you can opt for an ECS mandate wherein an amount is deducted every month from your bank account. Investment planners recommend that to get the benefits of SIP, you should invest for longer periods of time typically 5-10 years. However, of late, there are a number of ways in which you can do a SIP. While traditionally you could do SIPs only in mutual funds, today there are different ways in which you can buy stocks of your choice with the help of SIPs, or even exchange traded funds (ETFs). While the traditional way of doing a SIP was once a month, today you can do a SIP daily, weekly, fortnightly or even quarterly. Some fund houses also allow you to do a value SIP or STP , or a flexi SIP. Then, there are portals that offer you alert SIPs. As an investor what are the options available to you and how do you choose them? DAILY SIP Compared to your money which goes in on a monthly basis as in a traditional investment, here money goes daily into the fund. Of late, some mutual funds have started offering a daily SIP. Essentially, these products are meant for small traders or for the micro segment, he explains. However, not everyone is a fan of daily SIP. Daily SIP is an overkill and not really needed, says Vaid of Ffreedom Financial Planners. Though it makes averaging consistent, it is cumbersome, says Vishal Dhawan, Founder, Plan Ahead Wealth Advisors.

FLEXI-SIP

Traditional SIPs allow you to invest only a fixed amount every month or daily. However, a flexi SIP enables investors to set up a range of amounts for the SIP investments and be flexible about how much they want to invest every month. It is not available in the conventional mode through mutual funds. It is offered by portals like fundsindia.com. We received several queries from investors on how they can modify their SIP payment if they want to what to do if they want to reduce or increase the SIP amount, says Srikanth Meenakshi, founder, fundsindia.com.

Monthly sip
This is the most traditional way of doing a SIP in an equity mutual fund. This works well most for salaried people, who get a monthly cash flow, says Vaid of Ffreedom Financial Planners. Investors tend to opt for a date between the 1st and 10th of the month, since most of us get salaries at the end of the month. Most investors tend to avoid the last 10 days of the month, on fear of exhausting their surplus money and not being able to meet their SIP commitment, explains Vaid. SIP TOP-UP HDFC Mutual Fund offers a SIP Top-Up. Here an investor who wishes to enrol for SIP, has an option to increase the amount of the SIP instalment by a fixed amount at pre-defined intervals. The SIP top-up amount should be filled in the enrolment form itself. So, you choose to invest Rs 2,000 for the first six months and then prefer to invest Rs 5,000 per month. VALUE AVERAGING PLAN This is offered by some mutual funds such as Benchmark and portals like fundsindia.com. It is a strategy that uses mathematics and algorithms. It works like SIP in terms of steady monthly contributions, but differs with regard to monthly contribution. Here the investor, sets a target growth rate or amount on his or her asset base or portfolio each month, and then adjusts the subsequent months contribution according to the relative gain or shortfall made on the original asset base. Suppose you want to add Rs 1,000 added to your equity mutual fund every month and you start with investing Rs 1,000. Now at the end of first month the value of your fund becomes Rs 1,200. So now you need to invest only Rs 800 (1000-200) to make the investment worth Rs 2,000. In the following month, the value of investment reduces to Rs 1,900 due to correction in the market, so you need to invest Rs 1,100 (3,000-1,900) so that the amount touches the target amount of Rs 3,000. In other words, you buy more (units) when the prices are low and you end up investing less (buying less units) when the markets peak.

HOW SHOULD YOU CHOOSE Financial planners feel that the most important thing is to go ahead and start a SIP first. Keep things simple. There are no proven scientific benefits of a flexi SIP. Even a monthly SIP is as good as any other investment, says Amar Pandit, a Mumbai-based financial planner. The type of SIP, does not matter but the period does matter, adds Bhaiya. He asks investors to invest in SIPs for at least five years to reap the benefits. Most retail investors do not have the time and energy to monitor and track complex methods of SIP investments. If you are a long-term investor who invests in line with your asset allocation and have a time horizon of 5-7 years, keep things simple and go with a traditional monthly SIP, adds Vaid.

Benefits of SIP Mutual Funds

Posted by: moneyindia on: January 19, 2007 In: Systematic Investment Plan

Comment!

Is your money lazing around ? Or is it working systematically for you ? In General Money lies idle because. we think I must have a substantial amount before I invest I am waiting for the right time to invest Instead when you invest through SIP, you will 1. Invest every month and make your money work right away 2. Avoid the mistake of trying to buy at the right time 3. Buy through bullish and bearish phases thus averaging your cost 4. Avoid panic sales 5. Invest as little as Rs.500 / Rs.1000 per month Benefits of SIP : Benefit 1 : Become a disciplined Investor. Investing is a marathon and not a 100m dash ! Do it brick by brick Benefit 2 : Reach your financial goals. If you want to buy a car and do not know where the down payment is going to come from, SIP is a perfect tool Benefit 3 : Take advantage of Rupee Cost Averaging (see example) Benefit 4 : Take advantage of Power of Compounding (see example) Benefit 5 : Do all this efforlessly by signing an application form & with ECS

Systematic Investment Plan (SIP): Advantages & Good time to start a SIP?

What are the advantages of a systematic investment plan (SIP)? Is it a good time for starting a SIP? -Subhash Raj, Bhopal

A Systematic Investment Plan or SIP allows us to take advantage of thegrowth potential of stock mutual funds, even if we do not have a large sum of money to invest. Infact most mutual funds require a minimum of just Rs.500 per month to get started. Most of us are used to paying for a car or home purchase with monthly EMIs (Equated Monthly Investments). Think of a SIP investment along those lines - only, you are paying yourself a monthly sum, and investing in the stock market, to build long-term wealth!

Advantages of a Systematic Investment Plan

You can budget for a SIP investment every month if you are say, looking to invest only a small amount on a regular basis. Even if you have a lump sum to invest, you may not want to invest all of it at one go. And a systematic investment plan where you spread out the investment in the stock market over several months can provide several advantages. It will help you mitigate market risk and volatility. It helps you test out the waters and build your portfolio one step at a time.

Please look carefully at the table above. It becomes clear that most importantly, a systematic investment plan provides the benefits of what is called "rupee cost averaging". In other words, if the stock market goes down, your next payment will buy more units. And If the market goes up, your investment will increase in value.

So, What's a good time to start a SIP?

We have seen record highs in 2007 and record lows too, in 2008. Now in June 2009, we are seeing a market that showed a remarkable recovery from the lows of as recent as March 2009. Will it sustain or go down again? No one knows. It is simply not possible to time the market accurately. If it was that easy all the fund managers would be sitting at home with their fortunes, isn't it. So, how do you decide when is a good time to start investing in a SIP? The answer is simple. Anytime is good. If you can maintain the discipline of making regular monthly investments. Consider the graphic below carefully. We are looking at an example where a investor started at possibly the worst time in the recent history of our markets - February 2000 - at the peak of the dot-com bull market. He started investing Rs. 1000 every month in a composite fund (consisting of the 10 largest open-ended equity funds with 10 yr plus track records) and continued investing till Sep 2008.

With the hindsight knowledge of the huge fall from the dot-com/technology driven high of year 2000, its a good bet that nobody would have advised the investor to start a SIP at that time. But look at the annualised returns of 29%compounding even after starting just before the market crashed! Now that's as good a record, as any. So we can see that it really did not matter when he started. Neither did it matter as much that again in Sep 2008 the market was touching record lows. 2001 to 2003 was a sticky bear market. But that meant that the investor was actually buying units of the mutual fund at very low prices. His patience and discipline got rewarded when the market finally took off in 2003. And again from Sep 2008 to Mar 2009, if he continued investing he would have purchased those units at low prices, and reaping the benefits now.

There is a lession from this history. That if you have a fairly long investingtimehorizon - upwards of 5 years, at the least - a systematic investment plan can reap you huge rewards. Now that you are convinced of the utility of a SIP, why SIP is a smart move, and why you need to be regular with your instalments, you are probably ready to invest.

Which funds to invest in through SIP?

If you have reached this far, I am sure you are already asking but hullo, how do I decide where to invest in, which funds have the potential to give me the best returns, which are the top rated funds, etc.? Not to worry, check out the top rated funds at ValueResearchOnline a site dedicated to mutual fund investing that will give you all the answers you need, and more. Good luck! Get started today!

Investing Basics: 7 steps for newbies to invest in a SIP Plan

Investing Basics first steps. What are the exact procedures one totally ignorant person should follow to invest in SIP? - Ribus

You could follow the investing basics first steps, as outlined below: 1. Get yourself a PAN (Permanent Account Number), if you don't have one. PAN number is mandatory for any financial/investment transaction in India, including Mutual Fund investments. Usually one receives the PAN card within 15-21 days of application. See the details for applying for a PAN card here. 2. Open a trading account with ICICIDirect or an Investment account with Citibank. If you already have a bank account with either bank, opening the investment or trading account is fairly simple. You will need to fill up some additional forms, and you can be ready to roll withing 7-10 days. 3. Next, you need to do some research, about the best funds to invest in.ValueResearchOnline is a good, independent research site dedicated to the mutual fund industry. Check out the top-rated funds here, funds that have a track record of atleast 5 years or more of solid performance. Do some more research, read what the analysts have to say about the fund, fund manager, and its track record, and things like risk/return. Its generally not advisable to start SIP in funds that have performed best in the last 1 yr, only. Make sure to check what their record is over the last 3 yrs, 5yrs and since inception. Doing this, and reading the Fund Analysis will lead you to the funds with the best track records. This is where you should be investing your SIP money in. Why take chances with unproven funds when there are a host of great funds with

super track records like SBI Magnum Contra, HDFC Prudence, etc. It is advisable to invest in only the 5-Star or 4-Star rated funds. 4. How do you pick which funds to invest in? Investment is all about risk and return. So you must diversify your investments among funds of different styles. You can do that effectively once you have identified your individual risk tolerance. 5. Time to draw up your individual SIP plan now. Once you know your risk tolerance profile, you may be able to decide what type of funds you will be comfortable with. For example, a conservative investor may like to invest bulk of the portfolio in reputed Balanced Funds, whereas a moderate investor may like to spread his investments between reputed Balanced Funds and Equity-Diversified funds. An aggressive investor perhaps would like to put bulk of his investment in reputed Equity-Diversified funds. Also, avoid investing in too many funds. You may end up in funds with similar styles and your returns will end up getting fragmented. Pick 4-5 funds at most and split your money equally to start with. If you have Rs. 2000 to put in SIPs every month, go for 2 funds that you like. If there is Rs. 5000 that you can spare, go for 4-5 funds. More than that, again split equally among the 4-5 funds. The above allocation is a simple one that you can follow. However if you want to learn to do this the right way, you may like to read up more on Where to invest: asset allocation principles. Actually, while you are there it may be a good idea to first educate yourself with the investing basics articles How to Invest: basic principles and How to invest: your investment profile, before going on to asset allocation. 6. Once funds are identified, you then need to use the SIP purchase option in ICICIDirect or RIS (Regular Investment Scheme) in Citibank. Choose the Fund Company, select the appropriate fund and click on SIP/RIS, enter monthly amount, and you are done! 7. Make sure to monitor your investments every 3-6 months. Check what returns the fund has given you. Periodically revisit Valueresearchonline to see what they have to say about your fund and its rating. If a fund consistently underperforms for 6 months to a year, its rating may have been downgraded. Follow the above research process to rebalance your portfolio, as necessary.

Benefits of Systematic Investment Plan(SIP)

July 4, 2009 | In: Investment

As I had already shared, SIP is a method of investing a fixed sum of money regularly in a Mutual Fund Scheme. It is quite similar to regular saving scheme in a bank account like a recurring deposit. The only difference is that there are good chances of getting a better return than a bank deposit when investing in stocks. Benefits Of SIP SIP offers you tax benefits which could come in handy if have to pay income tax. Regular Investment makes you disciplined in your savings and also leads to wealth accumulation.

SIP comes with a locking period, so even if you wish to spend you cannot as the funds are locked and cannot be taken out. In SIP, invest as low as 500 or 1000 rupees. There is no need to worry if you do not earn a lot of money as you can still be a market investor with as low as 500 a month and even that would come up to be quite a good sum after a few years. In SIP, you invest in mutual funds where your investments are managed by market experts and professionals who have good knowledge in this field, so you have a chance to do much better than that of investing yourself alone. In SIP, you will be purchasing units at all phases of the market, high or low, depending on that you get the units share and so you dont need to worry about market going up or down. But just have to wait for the right time to take out your money after the scheme is over and no more deposits are being done. Thus your investments get averages out at the end and the loss is very limited which isnt the case when you invest all at once.

There are advantages to being a disciplined investor. Investing regularly via Systematic Investment Plans (SIP), even if these are small amounts, offers many benefits like:

There is no need to time the markets as you invest at predetermined intervals. This spares you from investing a lump sum amount at peak prices. You benefit from an investment principle called 'Rupee cost averaging'. Since you invest fixed sums at regular intervals, you pick up more units when the prices are low and less units when the prices are high. This brings down the average cost of your units. A Systematic Investment Plan renders to you the power of compounding, especially if you begin your SIP early in life. SIPs inculcate the savings habit in investors. On a regular basis you put aside affordable sums of money and without realising it, over the long run you could amass great wealth. It is a hassle-free mode of investment since you can issue standing instructions for the regular transfers of money into your SIPs. SIPs serve as a great financial tool to counter inflation Click here to know more about the different SIP options which are appropriate for your specific needs and are in line with your profile. Our Relationship Manager will get in touch with you shortly.
Mutual Funds are subject to market risk. Please read the offer document carefully before investing. Terms and Conditions apply.

SIP Basics Are you ready to think big? Start small! ============================== We all need to provide for something. It could be planning for a home, children's education, or retirement. But how do you get started, especially if you don't have a large sum of money? The simple solution is to begin a SIP or Systematic Investment Plan. Just as you can buy a car or a home by paying monthly instalments, you can invest in the stock market in easy instalments for your future. In fact, investing just Rs. 500 at a time can help you benefit from the growth potential of mutual funds. Why is SIP - A smart move ===================== If you want to put aside just a small amount regularly, you can plan a SIP as part of your monthly budget. Or, if you have a lump sum, but do not want to invest all of it, a SIP can be a smart move. It helps you to build your portfolio one step at a time and also helps you to ride over market volatility. But above all, you benefit from 'rupee cost averaging': If the market goes up, the units you own will

increase in value. If it goes down, your next payment will buy more units. Check out the figures for yourself. https://www.fidelity.co.in/learning_cent Discipline is the key Any time is good to start a SIP. If you are regular with your installments. ====================================== How can you pin-point the best time to invest in a SIP, especially if the market is hitting record highs? The answer is simple. Choose any time! But you don't need to take our word for it. In the example below an investor began a SIP of Rs 1,000 every month in a simulated equity mutual fund from the market peak of February 2000 through March 2008. Conventional wisdom would not have advised beginning an investment at this point as a tech-driven high was followed by one of the most precipitous falls in the history of the Indian stock market. However, history tells us quite a different story. Two years of being mired in a bear market actually meant two years of buying units at low prices. When the market took off in 2003, the SIP investor's patience and discipline would have been suitably rewarded. Check this out at https://www.fidelity.co.in/learning_cent The best part is market is right now at record lows, so this is a good time as any to start a SIP. Actually I would recommend that if you are planning a monthly Rs.1000 SIP, start with 5x the amount now i.e. Rs. 5000 as initial amount , and then Rs. 1000 every month. Now that you are convinced of the utility of SIP, and why SIP is a smart move, why you need to be regular with your installments, (hopefully:-)), you are ready to invest. But where, which funds have the potential to give me the best returns, which are the top rated funds, that will be your next logical question, right? Not to worry, there's another fantastic site that will give you all the answers you need and more. Check out the top rated funds at Top Rated Funds http://www.valueresearchonline.com/topra Good luck! Start today!

Advantages of SIP
Aug 17, 2004

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What are the advantages of making investments through SIP. Please tell me some good equity SIP and their returns? Harish Chander Purohit You would be surprised to see the returns that SIP investments in some good equity funds have generated. For example, a five-year SIP in Franklin Indian Prima has yielded an annualised return of 42.28 per cent. If someone has

regularly invested a fixed amount every month in Franklin India Bluechip for the past 10-years, he would have earned an annualised return of 28 per cent. For full detail see table on SIP returns for the four diversified equity funds over various time periods. A SIP is a planned investment program under which you invest a small amount of money at regular intervals. The minimum amount can be as small as Rs 500 and the frequency of investment is usually monthly or quarterly. This simple program has a number of advantages. SIP's most important characteristic is that it does away with the need or effort to time the market. When the market is falling you may feel that it may decline further and that you should wait a while. Often stock markets make a recovery before you notice and the opportunity is lost. When markets are rising it is scary to invest money. Isn't it better that you wait for a correction and then make an investment? But if the correction doesn't come about, then even this opportunity is missed. And if markets are going nowhere, then what is the point in investing at all? SIPs are also very convenient. Money, deducted from your account (through postdated cheques) and invested, is money you cannot spend. And a rupee saved is a rupee earned. Even if each investment is small, over the time this can add up to a neat kitty. And the power of compounding can do wonders. In due course of time, a small amount can grow into a significant amount (see Table: SIP Returns)

Systematic Investment Plan (SIP) The dark side!

I personally am a great fan of Systematic Investment Plan (SIP) in Mutual Funds and have posted several articles on the same. Also known as Rupee cost Averaging (in India) or Dollar cost Averaging (in US) its no doubt a well known strategy to create serious wealth in long term. But I have not found many sites talking about the disadvantages or the flip side of SIP. So here is a

post to make you aware of the disadvantages of using SIP and suggest if there is a way out?

Systematic Investment Plan (SIP) Disadvantages

SIP returns are lower in consistently rising markets: Imagine this situation Its New Year eve of 2009 and your rich uncle is here and impressed by you & your cousin hospitality gifts both of you Rs 1 Lac. You both being financially prudent want to grow this windfall. You approach a financial planner and as every good planner would, he recommend you to invest in NIFTY BeeS using SIP. So you follow him and plan investment in 12 monthly SIP installments while your cousin puts his entire money as lump sum investment in the same NIFTY BeeS. Who do you think made more money by 2010 New Year eve? Your cousin would have around Rs 1.72 Lac while you would have Rs. 1.37 Lac. So your cousin gained 25% more just by doing lump sum. Lesson Learned: SIP is a good way to invest but occasional lump sum investment when the markets are highly undervalued adds to your gains.

Limited options of dates: For a SIP in Mutual Fund you need to decide a date in advance when you like to do your SIP and give an ECS mandate for the same. Most of the MFs have limited option (mainly 1st, 5th, 7th, 10th, 15th, etc). So you tend to invest in multiple mutual funds on the same date. You want to lessen your risk by spreading your SIP in the entire month by choosing different dates for different funds. Way out: For funds having an online option you can do SIP yourself but without emotions coming into play or second option is do SIP with fundsindia.com that provide SIP on all dates. You can read more about the same here.

Fixed Amount: There are times when you feel that markets are undervalued and you want to invest more but then in SIP only a predetermined fixed sum gets invested. Same is the case when you want to invest less, you cant do it. Way out: Try VIP (Value Averaging Investment Plan). I would write about it soon.

Stopping intermediate payment:

It may so happen that you got an emergency or have a major expense this month and so you dont want to invest. But with SIP this is not possible; if theres money in your bank it will get debited and invested. The only way out is to cancel the SIP which can be a nightmare if you have a lot of SIPs and also when you want to start again you need to go through all the formalities to start the SIP. Also for cancellation you need to inform 2 weeks in advance and even then you may not be sure that SIP would not be debited.

Lot of delay between actual application & start/stop of SIP: I feel this is very irritating and you may miss one monthly installment; MF houses need at least a month to start a SIP and around two weeks to stop your SIP. I think its the time they should try and comeup with quicker processing of SIPs.

Does not suit people with unpredictable cash flows: Think of someone who doesnt have a predictable cash flow like a self-employed professional. He wont be able to do SIP as he would be unable to commit a fixed sum every month.

To Conclude: Even though SIP suffers from these disadvantages but it still seems to be one of the Best investment option available to a long term investor. It particularly suits First-time investors in equity and those who do not have a lumpsum or the time to track their investments. The salaried class should also opt for SIPs since it becomes a good savings habit. Investors who do not wish to be stressed by market volatility should adopt the rupee-cost averaging method for secured long-term investment planning.

Is the Mutual fund industry in India doomed or is it growing at a fantastic rate? This is such a difficult question to answer - and the truth is that no person can say with a great sense of surety that his or her answer is accurate or even in the direction of being correct! Having said that, I am planning to make an attempt. Facts: You keep hearing every day that a foreign fund is pulling out of the country. Well none of them have confirmed the pull out, so it is in the realm of speculation. It is embarrassing to name the funds that you have heard about pulling out of Indian operations. Since many of them have not confirmed it, I am not naming them. Then you hear a deal like Goldman Sachs buying over Benchmark Mutual fund. You also hear that SEBI is now allowing foreigners to invest in Indian fund schemes - soon the exact procedure will be out. Will it mean money will just start flowing in?

Not sure, but all the foreign fund houses are in a position to bring in small amounts at least from their parent countries! So largely in a country where you are playing around with highly inaccurate data you cannot really do any data driven story - just speculate about the quality of the data that is available! Clearly visible to all of us is the size of the industry - and for all the hoopla about theentry load which led the industry to grow at a good pace. Unfortunately all the growth is in the debt portfolios and perhaps from the wholesale/banking customers. Let us look at the positive side of the whole thing. I heard (not confirmed) that there are 55 lakh SIPs currently in India. Also the average amount being thrown about is Rs. 2500 per month per Systematic Investment Plan (SIP). Now this means about Rs. 1375 crore per month is flowing into EQUITY FUNDS every month. This is a fantastic number! The potential is perhaps much much more, but in spite of that this is a great number to be working on. Also the advantage of SIPs is that it is good for the investor, the fund manager, as well as the distributor. Assuming that this is true, about Rs. 18000 crore flows into equity funds every YEAR. Now assume that in the next 3 years the number of SIPs increases to 110 lakh and the average SIP amount increases to say Rs. 5000 per month...the amount per month will be Rs. 2750 crore and about 35k crore per annum. Now all this and the existing AUM in equities will make this a really significant industry. Also the top 5 fund houses or let us say the top 5 schemes will continue to attract a higher than normal inflows - thus helping the big get bigger. Bigger funds have the advantage of lower costs - which in turn helps their performance look better. Thus you have HDFC Top 200 on the threshold of Rs.10000 crore - a number which many fund houses do not have! Will it happen? Will the debt funds continue to attract more and more amounts? Both are difficult to say. However given the bank branch expansion, they are likely to sell SIPs which will ensure that we achieve the SIP target of 110 lakh SIPs over the next 4 to 5 years, and thus create an equity culture. Also it is possible that all the mutual funds selling SIP aggressively - and the people seeing the advantages the mutual fund industry will grow at a good pace. The load being there or not is incidental!! -PV Subramanyam, a Chartered Accountant by qualification, is a trainer and runs subramoney.com