Systematic Investment Plan in Mutual Fund is commonly named SIP – is really getting popular in India. Systematic Investment Plan is such a beautiful tool, which if used properly can help you to achieve all your financial goals. Some time back we wrote “Do you really understand Systematic Investment Plan” which is one of the most popular article of TFL, but readers requested that they want to read more about basics of Mutual Fund SIP. So here it is..
This Article will cover
|Magic of SIP|
|Advantage & Benefit of Systematic Investment Plan|
|Best Systematic Investment Plan in India|
|Systematic Investment Plan Presentation with Facts & Figures|
|SIP Presentation with Examples & Analogies (I like this one 🙂 )|
|Systematic Investment Plan (SIP) Calculator – Must Use|
What is Systematic Investment Plan?
We all have various financial obligations. Some of them like daily needs, school fees, etc involve the major outgo of your cash. Others like trip for your family or buying a fancy gizmo entails a one time payments for which money can be relatively easily collected. But for long term goals like retirement or purchasing a home require you to save and invest for many years. Yet irrespective of the amount involved and the time horizon, planning and investing money systematically and regularly enables you to sail through these obligations. A SIP could prove to be a simple and effective solution toward achieving these goals.
A SIP is a method of investing in mutual funds, by investing a fixed sum at a regular frequency, to buy units of a mutual fund schemes. It is quite similar to a recurring deposit of a bank or post office. For the convenience, an investor could start a SIP with as low as Rs 500; however this amount may differ from one fund house to other.
Benefits of Systematic Investment Plan
1. Light on the wallet: It is easier to build a long term innings with singles than hitting 4s and 6s everytime. It is convinient to save Rs.500 or Rs.1000 every month than trying to save a lac in one shot. SIP does not hurt and it gives that long term benefit as well.
2. Makes market timing irrelevant: If market lows give you the jitters and make you wish you had never invested in equity markets, then SIPs can help you blunt that depression. Most retail investors are not experts on stocks and are even more out-of-sorts with stock market oscillations. But that does not necessarily make stocks a loss-making investment proposition. Studies have repeatedly highlighted the ability of stocks to outperform other asset classes (debt, gold, property) over the long-term (at least 5 years) as also to effectively counter inflation. So if stocks are such a great thing, why are so many investors complaining? Its because they either got the stock wrong or the timing wrong. Both these problems can be solved through an SIP in a mutual fund with a steady track record.
3. Helps you build for the future: Most of us have needs that involve significant amounts of money, like child’s education, daughter’s marriage, buying a house or a car. If you had to save for these milestones overnight or even a couple of years in advance, you are unlikely to meet your objective (wedding, education, house, etc). But if you start saving a small amount every month/quarter through SIPs that is treated as sacred and that is set aside for some purpose, you have a far better chance of making that down payment on your house or getting your daughter married without drawing on your PF (provident fund).
4. Compounds returns: The early bird gets the worm is not just a part of the jungle folklore. Even the ‘early’ investor gets a lion’s share of the investment booty vis-à-vis the investor who comes in later. This is mainly due to a thumb rule of finance called ‘compounding’. According to a study by Principal Mutual Fund if Investor Early and Investor Late begin investing Rs 1,000 monthly in a balanced fund (50:50 – equity:debt) at 25 years and 30 years of age respectively, Investor Early will build a corpus of Rs 8 m (Rs 80 lakhs) at 60 years, which is twice the corpus of Rs 4 m that Investor Late will accumulate. A gap of 5 only years results in a doubling of the investment corpus! That is why SIPs should become an investment habit. SIPs run over a period of time (decided by you) and help you avail of compounding.
5. Lowers the average cost: SIPs work better as opposed to one-time investing. This is because of rupee-cost averaging. Under rupee-cost averaging an investor typically buys more of a mutual fund unit when prices are low. On the other hand, he will buy fewer mutual fund units when prices are high. This is a good discipline since it forces the investor to commit cash at market lows, when other investors around him are wary and exiting the market. Investors may even be pleased when prices fall because the fixed rupee investment would now fetch more units
6) What is your equation to investments:
EARN->SPEND->SAVE OR EARN->SAVE->SPEND
The first is a wrong way of investing. You should be saving in a disciplined manner and SIP enables you to follow the second, which is the correct equation of investments.
7) Easy, Flexibility and Liquidity: SIP is easy to start, manage and stop. It gives you flexibility to choose a desired scheme or to with draw in parts. And with conditions you have the money for contingency and emergency use.
8) You can also do SIP in ELSS (Equity Linked Saving Scheme) to save tax under section 80 C.
Best Systematic Investment Plans in India
|Mutual Fund||3 YearsInvestment 36000||5 YearsInvestment 60000||10 YearsInvestment 120000||12 YearsInvestment 144000|
|Birla Sunlife Equity Fund||26||51990||17||92033||29||570925||27||847695|
|DSP BR Equity Fund||30||55142||22||103852||32||656368||28||890730|
|Franklin India Blue Chip Fund||28||54785||20||98935||29||549491||27||860441|
|HDFC Equity Fund||39||61979||26||112626||34||721916||32||1142897|
|HDFC Top 200 Fund||34||57909||24||109045||33||706670|
|ICICI Prudential Growth Fund||25||51186||16||90158||25||437115||22||616589|
|Reliance Growth Fund||29||54014||21||100716||38||901404||35||1407815|
|Reliance Vision Fund||25||51789||17||91941||33||677154||31||1078457|
|SBI Magnum Global Fund||29||54249||16||88337||31||607379||26||793162|
|Sundaram Growth Fund||24||50576||15||88069||25||458342||22||617858|
|Tata Pure Equity Fund||27||52625||19||95385||29||554004||25||727228|
*Calculations are done on 1st day of 2011 – Monthly Investment of Rs 1000
I will again say Best comes after postmortem report – you should see them as Top Systematic Investment Plans in Last 10 Years or just Systematic Investment Plan Comparison.
Calculations are done on Rs 1000 per month investment to keep things simple. If you would like to calculate for Rs 5000 or Rs 10000 – you can multiply the amount by 5 or 10.
Systematic Investment Plan Presentation
If you like facts & figures check this SIP presentation by DSPBR Mutual Fund
If you like stories & analogies check this presentation by TATA Mutual Fund
Wasn’t that simple, and this is the reason we call SIP a SIMPLE INVESTMENT PLAN.
Systematic Investment Plan Calculator
- Figures are in Dollar($) but you can treat them in Rupees.
- In Compounding Keep it Annually
- Notice in last years how fast your assets grow.
- Try 2 things to check impact of Power of Compounding:
- Take interest 5%(Insurance Endowment Plans), 8%(your debt investments) & 12-15%(Diversified Equity Mutual Funds)
- Take 15 Years & 30 years
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