Most commonly known as Systematic Investment plan. Some also call it modified Recurring deposit(RD).
SIP is an intelligent form of investing. SIP is not a product, its a simple tool to invest. Systematic Investment Plan (SIP) is basically investing an amount systematically over a period of time in Mutual funds. Rather than accumulating an amount and then invest in Lumpsum (one time), SIPs help invest a smaller amount on regular intervals.
1. It allows to invest regularly over a period of time: SIP helps to invest regularly over a period of time.
2. Lighter on the Wallet: It allows to save in small amounts.It gives the benefit of saving in small denominations. As small as Rs.100 per month can be invested in SIP.
3. It gives Freedom to enter and exit at anytime: The SIPs are done in open ended schemes which gives the flexibility to enter and exit at any point of time. These are not Time Bound.
4. It instils disciplined approach in one’s Investments: Think of each SIP payment as laying a brick. One by one, see them transform into a building.
5. Rupee Cost averaging: The investment buys more units when the price is low and fewer when the price is high, which can mean a lower average cost per unit over time. This is simplified with the example below:
|
Investment Date |
Amount |
NAV |
Units |
|
10 Jan |
1000 |
10 |
100 |
|
10 Feb |
1000 |
9.80 |
102.04 |
|
10 Mar |
1000 |
10.50 |
95.23 |
|
10 Apr |
1000 |
12 |
83.33 |
|
10 May |
1000 |
11.60 |
86.21 |
|
10 June |
1000 |
11 |
90.91 |
|
10 July |
1000 |
10.9 |
91.75 |
|
10 Aug |
1000 |
10.75 |
93.02 |
|
10 Sep |
1000 |
11 |
90.91 |
|
Amount Invested |
9000 |
||
|
Average NAV |
97.55/9= 10.83 |
||
|
Total Units |
833.4 |
||
|
Average Cost for investing |
9000/833.4= 10.79 |
6. No need to time the Market : The best question everyone loves to ask ” Is this the right time for Markets” is taken care when one is investing through SIP. Investment is done at highs and lows of market in Auto mode.
7. Investing Effortlessly: Start investment once and the following contributions will be made through ECS.
8. Power Of compounding: Albert Einstien rightly said “Power of Compounding is the eighth wonder of the world.” If one keeps on investing regularly, over longer period the end result will be huge.
Two Friends Ram and Shyam both of same age 25 years attend a workshop on “Importance of investing” and are convinced with SIP as a tool to invest. Ram is a Doer and believes in taking actions and he immediately starts a SIP of Rs.5000 for next 35 years for his retirement which he expects to start at 60 years of age.
On the other hand Shyam is a little lazy fellow and keeps on pondering and finally starts SIP at age 40 for next 20 years for Rs.10000 to compensate for starting Late.
So, Keep SIPping for a Bright future
- Ø Start Early
- Ø Invest Regularly
- Ø Plan for the future
Gurleen Kaur is a Financial Consultant and devotes her time to her company www.hareepatti.com. She has done her Bachelors in Finance and Investment Analysis(BFIA) from College of Business Studies(CBS, Delhi) and MBA from IMT, Ghaziabad. Currently she is also pursuing her studies in order to become a Certified Financial Planner. She can be Contacted at gurleen@hareepatti.greatestdesignever.com
I concur with your observations. We must act. Merely knowledge is not enough.
I concur with your observations. We must act. Merely knowledge is not enough.
True…Taking action is the Key !! “Dreams Become Reality when Intentions become Actions.”
True…Taking action is the Key !! “Dreams Become Reality when Intentions become Actions.”