Mutual Funds - Systematic Investment Plan

Systematic is the word that describes about a person who is organised and planned in all his activities. Whether it is earning, saving or spending, everything is done in a methodical manner, except for investing. But then we are not to be blamed for this. We never had enough money. Or, sometimes it was shortage of time. If this is the case, then it's time to have a look at the systematic investment plan (SIP) of mutual funds. A SIP is nothing but a planned investment programme, which takes a small sum of money from you and invests it in a mutual fund at regular intervals. The minimum amount can be as small as Rs 100 and the frequency of investment is usually monthly or quarterly. This simple programme has a number of advantages.

Each small drop is contributing to fill the lake.
Similarly WEALTH is created through SMALL Contributions made regularly.

SIP is similar to a Recurring Deposit. Every month an amount you choose is invested in a mutual fund scheme of your choice. It is not the amount but the discipline that matters. You'll be amazed to learn about the many benefits of investing through SIP.

Benefit 1: Become A Disciplined Invester
Being disciplined - It's the key to investing success. With the Systematic Investment Plan you commit an amount of your choice (minimum of Rs. 100 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, you'll see them transform into a building. You'll see your investments accrue month after month. It's as simple as giving postdated cheques or ECS form to us for a fixed amount in a scheme of your choice. It's 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 don't know where the down-payment will come from. 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 child's 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 Saving - What your saving may generate ?
Saving per Month (for 15 years) Total Amount invested (Rs. in Lacs) Rate of return (in lacs, 15 year later)*
6.00% 8.00% 10.00%
5000 9.00 14.60 17.40 20.90
4000 7.20 11.70 13.90 16.70
3000 5.40 8.80 10.40 12.50
2000 3.60 5.80 7.00 8.30
1000 1.80 2.90 3.50 4.20

* Monthly installments, compounded monthly, for a 15-year period.
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 time consuming and risky. A more successful investment strategy is to adopt the method called Rupee Cost Averaging. To illustrate this we’ll 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 illustrates how their respective investments would have performed from Jan to Dec:

Month Suresh's Investment Rajesh's Investment
NAV Amount Units NAV Amount Units
January 9.345 1000 107.009 9.345 1000 1284.109
February 9.399 1000 106.394 - - -
March 8.123 1000 123.107
April 8.750 1000 114.286
May 8.012 1000 124.813
June 8.925 1000 112.045
July 9.105 1000 109.866
August 8.310 1000 120.337
September 7.568 1000 132.135
October 6.462 1000 154.751
November 6.931 1000 144.279
December 7.600 1000 131.579
Total 12000 1480.601 12000 1284.109

* NAV as on the 10th every month. These are assumed NAVs in a volatile market.
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. That’s because the average cost of Suresh’s units is much lower than that of Rajesh. Rajesh made only one investment and that too when the per-unit price was high.

Suresh’s average unit price = 12000/1480.6012 = Rs. 8.105
Rajesh’s 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 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 doesn’t 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, Neha’s Investments have grown to Rs. 46,68,273* whereas Arjun’s investments have grown to Rs. 36,17,084*. Neha’s 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.

Benefit 5 : Do All This Effortlessly

Investing with SIP is easy. Simply give us post-dated cheques for an amount of your choice (minimum of Rs. 100 and in multiples of Rs. 100 thereof*) and we’ll 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.

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