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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 systematicinvestment plan (SIP), investors are benefitting from the long-termadvantages of dollar-cost averaging and the convenience of saving regularlywithout taking any actions except the initial setup of the SIP.

Read more: http://wInvestopedia explains 'SystematicInvestment Plan - SIP'

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 thesecurity 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 dividendsreceived from their holdings back into purchasing more stock, called dividend reinvestmentplans (DRIPs).

Readmore: 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

Units

Purchased Investor B

Units

Purchased

Unit

Price

(In Rs.) (In Rs.)

1 10000 1000 1000 100 10

2 0 0 1000 105.3 9.5

3 0 0 1000 114.3 8.8
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4 0 0 1000 115.6 8.7

5 0 0 1000 118.3 8.5

6 0 0 1000 125 8

7 0 0 1000 117.6 8.5

8 0 0 1000 107.5 9.3

9 0 0 1000 95.2 10.5

10 0 0 1000 90.9 11

Total

Investment

Rs.10000 1000 Rs. 10000 1089.8 Up to 50

days

Total

Value

Rs.11000 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 fundsto help investors save

regularly.

It is just like a recurring deposit with the post office orbank 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.
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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


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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
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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 PlanAuthor: 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 atperiodic intervals raises the accumulated investment.

You can start investing in SIP with amount as small as Rs. 100 per month.

Systematic Investment Plan (SIP)
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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 currentlyavailable 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 Herefor Scheme Wise Details for SIP

Benefit 1

Become A Disciplined Investor

Being disciplined - Its the key to investing success. With the HDFC MF SystematicInvestment 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. Itsthe 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 down-

payment 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 canplan 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 everymonth can go a long way.

Monthly Savings - What your savings may generate

Savings per month(for 15 years)

Total amount invested(Rs. in Lacs)

Rate of return

6.0% 8.0% 10.0%

(rupees in lacs, 15 years later)*

5000 9.0 14.6 17.4 20.9

4000 7.2 11.7 13.9 16.7

3000 5.4 8.8 10.4 12.5

2000 3.6 5.8 7.0 8.3

1000 1.8 2.9 3.5 4.2

*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
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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 arehigh. 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 wellcompare 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. Thefollowing table illustrate how their respective investments would have performed from Jan

to Dec:

Sureshs Investment Rajeshs Investment

Month NAV Amount Units Amount UnitsJan-04 9.345 1000 107.0091 12000 1284.1091

Feb-04 9.399 1000 106.3943

Mar-04 8.123 1000 123.1072

Apr-04 8.750 1000 114.2857

May-04 8.012 1000 124.8128

Jun-04 8.925 1000 112.0448

Jul-04 9.102 1000 109.8660

Aug-04 8.310 1000 120.3369

Sep-04 7.568 1000 132.1353

Oct-04 6.462 1000 154.7509

Nov-04 6.931 1000 144.2793

Dec-04 7.600 1000 131.5789

*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 mannerimply 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 thesemarket fluctuations are generally averaged. And the average cost of your investment is

often reduced.


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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 thatof Rajesh. Rajesh made only one investment and that too when the per-unit price was high.

Sureshs average unit price = 12000/1480.6012 = Rs. 8.105Rajeshs average unit price = Rs. 9.345

Benefit 4

Grow Your Investment With Compounded Benefits


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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 followingexample illustrates this.

Imagine Neha is 20 years old when she starts working. Every month she saves and investsRs. 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. 500and 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 sixmonths, 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 theSIP 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. Examplesinclude stock and mutual fundreinvestmentprograms, defined contribution plans,

mutual fundcontribution programs, and automatic withdrawal plans. also

called automatic investment plan.

Read
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more: http://www.investorwords.com/4856/systematic_investment_plan.html#ixzz1vDNHcBmZ

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.

The best funds to invest in

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.
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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.

How to invest in a mutual fund

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

3. How often does one have to invest?
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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 chooseone. 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).
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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.

Most volatile mutual funds

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

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.
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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 investsmallamounts 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 fundhouses 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 bankaccount.

Investment planners recommend that to get the benefits of SIP, you should invest for longer

periods of time typically 5-10 years. However, oflate, there are a number of ways in which

you can do a SIP. While traditionally you could do SIPs only inmutual funds, today there are

differentways in which you can buystocks 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 valueSIP or STP , or a flexi SIP. Then, there are portals that offer you alert SIPs. As an investor

what are the optionsavailable 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 AheadWealth Advisors.

FLEXI-SIP
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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 reduceor increase the SIP amount, says Srikanth

Meenakshi, founder, fundsindia.com.

Monthly sipThis is the most traditional way of doing a SIP in an equity mutual fund. This works wellmost for salaried people, who get a monthlycashflow, says Vaid of FfreedomFinancialPlanners. Investors tend to opt for a date between the 1st and 10th of the month, since mostof us get salaries at the end of the month. Most investors tend to avoid the last 10 days of themonth, 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 PLANThis 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 portfolioeach 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.
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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 FundsPosted 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?
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What are the advantages of a systematic investment plan (SIP)? Is it a good time forstarting a SIP?

-Subhash Raj, Bhopal

A Systematic Investment Plan or SIP allows us to take advantage of thegrowth

potentialof stock mutual funds, even if we do not have a large sum of money toinvest. 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 buildlong-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 onego. 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 youmitigate 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 costaveraging". 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.
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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 simplynot 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 regularmonthly 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 - February2000 - 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 fundswith 10 yr plus track records) and continued investing till Sep 2008.

With the hindsight knowledge of the huge fall from the dot-com/technology drivenhigh 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%compoundingeven

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 asmuch 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 unitsof 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.
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There is a lession from this history. That if you have a fairly long investingtime-horizon - 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 whyyou 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 bestreturns, which are the top rated funds, etc.?

Not to worry, check out the top rated funds at ValueResearchOnline a site dedicatedto 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 toinvest 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. PANnumber 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, andyou can be ready to roll withing 7-10 days.

3. Next, you need to do some research, about the best funds to investin.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 theanalysts have to say about the fund, fund manager, and its track record, and thingslike 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 sinceinception. 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
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super track records like SBI Magnum Contra, HDFC Prudence, etc. It is advisable toinvest 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 differentstyles. 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 toleranceprofile, 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 inreputed Balanced Funds, whereas a moderate investor may like to spread his

investments between reputed Balanced Funds and Equity-Diversified funds. Anaggressive 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 agood 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 assetallocation.

6. Once funds are identified, you then need to use the SIP purchase option inICICIDirect 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 thefund 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 monthsto 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 wealthaccumulation.
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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 notearn a lot of money as you can still be a market investor with as low as 500 a monthand 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 marketexperts and professionals who have good knowledge in this field, so you have a chanceto 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, dependingon that you get the units share and so you dont need to worry about market going up ordown. But just have to wait for the right time to take out your money after the schemeis over and no more deposits are being done. Thus your investments get averages outat 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 youfrom 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 pricesare high. This brings down the average cost of your units.

A Systematic Investment Plan renders to you the power of compounding, especially if you beginyour SIP early in life.

SIPs inculcate the savings habit in investors. On a regular basis you put aside affordable sums ofmoney 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 regulartransfers 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 andare 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 BasicsAre you ready to think big? Start small!==============================We all need to provide for something. It could be planning for a home, children's education, orretirement. 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 stockmarket in easy instalments for your future. In fact, investing just Rs. 500 at a time can help youbenefit 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 monthlybudget.

Or, if you have a lump sum, but do not want to invest all of it, a SIP can be a smart move. It helpsyou 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
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increase in value. If it goes down, your next payment will buy more units. Check out the figures foryourself. https://www.fidelity.co.in/learning_cent

Discipline is the keyAny 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 recordhighs? 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 equitymutual fund from the market peak of February 2000 through March 2008. Conventional wisdomwould not have advised beginning an investment at this point as a tech-driven high was followed byone 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 actuallymeant two years of buying units at low prices. When the market took off in 2003, the SIP investor'spatience and discipline would have been suitably rewarded. Check this outat 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 theamount 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 beregular 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 ratedfunds, that will be your next logical question, right? Not to worry, there's another fantastic site thatwill give you all the answers you need and more. Check out the top rated funds atTop Rated Fundshttp://www.valueresearchonline.com/topra

Good luck! Start today!

Advantages of SIP

Aug 17, 2004

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DELICIOUS

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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
https://www.fidelity.co.in/learning_centre/sip/know_why_a_SIP_is_a_smart_move.htmlhttps://www.fidelity.co.in/learning_centre/sip/know_why_discipline_is_the_key_to_a_SIP.htmlhttp://www.valueresearchonline.com/toprated.asphttp://openwinmail%28%27/membership/mailpage.asp?ref=/story/storyview.asp?str=7586%27,278,500)mailto:[email protected]://del.icio.us/posthttp://digg.com/http://reddit.com/https://www.fidelity.co.in/learning_centre/sip/know_why_a_SIP_is_a_smart_move.htmlhttps://www.fidelity.co.in/learning_centre/sip/know_why_discipline_is_the_key_to_a_SIP.htmlhttp://www.valueresearchonline.com/toprated.asphttp://openwinmail%28%27/membership/mailpage.asp?ref=/story/storyview.asp?str=7586%27,278,500)mailto:[email protected]://del.icio.us/posthttp://digg.com/http://reddit.com/


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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 post-

dated 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 aneat 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
http://www.finwinonline.com/2010/02/systematic-investment-plan-sip-dark.htmlhttp://www.finwinonline.com/2010/02/is-daily-sip-in-mutual-funds-better.htmlhttp://3.bp.blogspot.com/_p6WkLywaNQs/S4FrmkLFpzI/AAAAAAAAAN8/yfTxpDykXpE/s1600-h/pros_cons.gifhttp://www.finwinonline.com/2010/02/systematic-investment-plan-sip-dark.htmlhttp://www.finwinonline.com/2010/02/is-daily-sip-in-mutual-funds-better.html


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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:
https://www.fundsindia.com/node/414http://www.finwinonline.com/2010/03/vip-value-averaging-investment-plan.htmlhttp://www.finwinonline.com/2010/03/vip-value-averaging-investment-plan.htmlhttps://www.fundsindia.com/node/414http://www.finwinonline.com/2010/03/vip-value-averaging-investment-plan.html


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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 overBenchmark Mutual fund.

You also hear thatSEBI 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?
http://www.moneycontrol.com/mutual-funds/amc-details/BMhttp://www.moneycontrol.com/news/websearch.php?search_data=SEBI&cid=News&mbsearch_str=&topsearch_type=3&search_str=SEBIhttp://www.moneycontrol.com/news/websearch.php?search_data=SEBI&cid=News&mbsearch_str=&topsearch_type=3&search_str=SEBIhttp://www.moneycontrol.com/mutual-funds/amc-details/BMhttp://www.moneycontrol.com/news/websearch.php?search_data=SEBI&cid=News&mbsearch_str=&topsearch_type=3&search_str=SEBI


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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 abouttheentry load which led the industry to grow at a good pace. Unfortunately all the

growth is in thedebt 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 thenext 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 tosell 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

runssubramoney.com
http://www.moneycontrol.com/mf/glossary.php?category=D-Ehttp://www.moneycontrol.com/mutual-funds/performance-tracker/dlong/abhttp://www.moneycontrol.com/mutual-funds/performance-tracker/dlong/abhttp://www.moneycontrol.com/mutual-funds/performance-tracker/dlong/abhttp://www.moneycontrol.com/mutual-funds/performance-tracker/eqd/abhttp://www.moneycontrol.com/mf/sipplanner.phphttp://www.moneycontrol.com/mf/sipplanner.phphttp://www.moneycontrol.com/mutual-funds/nav/hdfctop200fundg/MZU009http://www.moneycontrol.com/news/websearch.php?search_data=PV+Subramanyam&cid=News&mbsearch_str=&topsearch_type=3&search_str=PV+Subramanyam&x=57&y=10http://www.moneycontrol.com/news/websearch.php?search_data=PV+Subramanyam&cid=News&mbsearch_str=&topsearch_type=3&search_str=PV+Subramanyam&x=57&y=10http://www.subramoney.com/http://www.subramoney.com/http://www.moneycontrol.com/mf/glossary.php?category=D-Ehttp://www.moneycontrol.com/mutual-funds/performance-tracker/dlong/abhttp://www.moneycontrol.com/mutual-funds/performance-tracker/eqd/abhttp://www.moneycontrol.com/mf/sipplanner.phphttp://www.moneycontrol.com/mutual-funds/nav/hdfctop200fundg/MZU009http://www.moneycontrol.com/news/websearch.php?search_data=PV+Subramanyam&cid=News&mbsearch_str=&topsearch_type=3&search_str=PV+Subramanyam&x=57&y=10http://www.subramoney.com/

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