Systematic Investment Plan

A simple approach to help you achieve your financial goals through SIP.
Why is it good for you?
Mutual Fund gives us four good reasons for investing through an SIP.
Lighter on the wallet
Makes timing of market irrelevant
Helps build for future by the power of compounding
Rupee cost averaging lowers your chances of losses.

So what's a Systematic Investment Plan?

SIP is a way of investing specifically designed for those who are interested in building wealth over a long-term and plan out a better future for themselves and their family. It is useful for those who want to get their investments going, but don't have a large sum of money to invest.

Who can buy a Systematic Investment Plan?

Anyone can enroll for this facility by starting an account with minimum investment amount - usually Rs 500 per month for one year. One can give post-dated cheques based on one’s convenience.

Why you should invest in a Systematic Investment Plan?

Discipline
The cardinal rule of building your corpus is to stay focused, invest regularly and maintain discipline in your investing pattern. A few hundreds set aside every month will not pinch your monthly disposable income too much. You will also find it easier to part with a few hundreds every month rather than investing a big lump sum in one go.

Power of compounding
Investment gurus always recommend that one must start investing early in life. One of the main reasons for doing that is the benefit of compounding. To explain with an example. Person A started investing Rs 10,000 per year at the age of 30. Person B started investing the same amount every year at the age of 35. When they attained the age of 60 respectively, person A had built a corpus of Rs 12.23 lakh while person B’s corpus was Rs 7.89 lakh. A rate of return of 8% compounded has been assumed. So the difference of Rs 50,000 in amount invested made a difference of more than Rs 4 lakh to their end corpus. That difference is due to the effect of compounding. The longer the compounding period, the better for you.

Now instead of investing Rs 10,000 each year, suppose person A invested Rs 50,000 after every 5 years, starting at the age of 35. The total amount invested, thus remains the same, which is Rs 3 lakh. However, when he is 60, his corpus will be Rs 10.43 lakh. Again, he loses the advantage of compounding in the early years.

Rupee cost averaging
This is especially true for investments in equities. When you invest the same amount in a fund at regular intervals over time, you buy more units when the price is lower. Thus, you would reduce your average cost per share or per unit over time. This strategy is called 'rupee cost averaging'. With a sensible and long-term investment approach, rupee cost averaging can smooth out the market's ups and downs and reduce the risks of investing in volatile markets.
"In developing economies like India, where securities markets (equities and fixed income instruments) can be volatile and it is rarely possible to time the markets and predict the future. We can seldom accurately predict when a particular stock will move up or where the interest rates are headed."

"Systematic Investment Plan makes the volatility of the securities markets work in your favor. Since the amount invested per month is a constant, the investor ends up buying more units when the price is low and fewer units when the price is high. Therefore, the average unit cost will always be less than the average sale price per unit, irrespective of the market rising, falling, or fluctuating. This concept is called Rupee Cost Averaging (RCA)."

Return Assumption
15% is what the sensex has grown at since its inception in 1980 when it started with 100 points which is also a reflection of corporate earnings growth

Other Notes

Historically over the last 10 years, some MF schemes have given returns in excess of 25% like Reliance Vision, Franklin Prima, Birla Sunlife Tax Relief '96 etc.. SIPs absorb market volatility, exhibit a compounding force and inculcate a sense of Savings discipline in the individual, thereby act as a WEALTH BUILDER tool in the long run