| |
| SYSTEMATIC
INVESTMENT PLAN
|
| What
is a Systematic Investment Plan |
| Systematic Investment Plan(SIP) is a disciplined
way of investing, where you invest fixed amounts
at a regular frequency . You often decide
to start saving and investing regularly ,
but get caught up in your day to day activities
and forget investments. SIP, the timetested
investment approach helps bring in the much-needed
discipline, and has shown good results the
world over. |
 |
|
| How
does a SIP work? |
| It is
a very simple, yet powerful concept. Once you have
identified the schemes that you want to invest in
and the savings required to achive your goals, all
you have to do is give us monthly/quarterly post-dated
cheques for the amount you want to invest. We will
allot you units of the schemes based on the prevailing
selling price on the date of your transactions,
and these will be credited to your scheme account. |
| |
| What's
special about SIP? |
In
addition to getting you into the habit of saving
regularly, SIP puts two powerful forces to work
for you.
Month |
Amount you invest |
NAV |
No. of units |
1
2
3
4
5 |
Rs. 1000
Rs. 1000
Rs. 1000
Rs. 1000
Rs. 1000
|
Rs. 10
Rs. 12
Rs. 10
Rs. 8
Rs. 10 |
100.000
083.333
100.000
125.000
100.000 |
Total |
Rs. 5000 |
Rs. 50 |
508.333 |
The average NAV = 50/5 = Rs. 10.00
Your average price = Your total investment / Total
no. of units
=
5000 / 508.333 = Rs. 9.84
What you see from the table above is the fascinating
aspect of Rupee Cost Averaging. It makes you busy
fewer units when the price is high and more units
when the price is low, thereby bringing down your
average cost. Moreover, this gives you the same
discipline as investment professionals. While Rupee
Cost Averaging does not assure you of a profit,
it is known to have worked well for millions of
investors throughout the world.
|
| |
| Advantages
of SIP |
An
SIP helps you reach your financial goals by investing
a fixed sum monthly / quarterly, in your chosen
fund, for a pre-determined number of periods.
So that you -
- Average out on market fluctuations (no need
to time the market).
- Get investment discipline, helping you
invest for and reach your future goals.
- Invest disposable funds – that might
otherwise lie in Savings accounts, earning
low interest and letting inflation eat into
them.
|
| |
How
to start an SIP |
| |
- Pick any date of a month, then fill out
an SIP form and an application form.
- Draw post-dated monthly / quarterly cheques
, adding up to at least minimum investment
of scheme.
- Monthly - Start with any dates of any month,
and stick to the same date of every month.
- Quarterly - Start on of any month, and
stick to the same date of every third month.
- If in any month the chosen date is not
a Working Day, the transaction will be completed
on the next Working Day.
|
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Illustration |
| |
Month |
Amount
Invested (Rs.) |
Rising
Market |
|
Falling
Market |
|
Volatile
Market |
| |
|
NAV |
Units
Alloted |
NAV |
Units
Alloted |
NAV |
Units
Alloted |
1 |
1,000 |
10 |
100.00 |
10 |
100.00 |
10 |
100.00 |
2 |
1,000 |
12 |
83.33 |
8 |
125.00 |
12 |
83.33 |
3 |
1,000 |
14 |
71.43 |
6 |
166.67 |
8> |
125.00 |
4 |
1,000 |
16 |
62.50 |
4 |
250.00 |
10 |
100.00 |
Total |
4,000 |
52 |
317.26 |
28 |
641.67 |
40 |
408.33 |
Average Purchase NAV
(Sum Total of NAV's/Total Number of investments
made) |
13.00 |
|
7.00 |
|
10.00 |
|
Average costs per unit
(Sum Total of Investment/ Sum Total Units
Alloted) |
12.61 |
|
6.23 |
|
9.80 |
|
|
| |
Thus
we see that the average unit cost under Systematic
Investment Plan will always be less than the average
purchase price per unit irrespective of the market
rising, falling or fluctuating. |
| |
|
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Difference of SIP
in Fluctuating Market and Rising Market |
| |
Let
us suppose that you would like to invest Rs. 1,000
every month, in an equity fund using the SIP. The
following table shows how your investments would
look in the two scenarios of fluctuating and rising
market |
| |
Month |
Amount
Invested (Rs.) |
Fluctuating
Market |
Rising
Market |
Purchase Price
(Rs.) |
No. of
Units
Purchased |
Purchase
Price
(Rs.) |
No. of
Units
Purchased |
Purchase
Price
(Rs.) |
Initial Investment |
1,000 |
10.00 |
100.00 |
10.00 |
100.00 |
1 |
1,000 |
8.20 |
121.95 |
10.50 |
95.24 |
2 |
1,000 |
7.40 |
135.14 |
11.00 |
90.91 |
3 |
1,000 |
6.10 |
163.93 |
11.50 |
86.96 |
4 |
1,000 |
5.40 |
185.19 |
12.00 |
83.33 |
5 |
1,000 |
6.00 |
166.67 |
12.40 |
80.65 |
6 |
1,000 |
8.20 |
121.95 |
12.90 |
77.52 |
7 |
1,000 |
9.25 |
108.11 |
13.35 |
74.91 |
8 |
1,000 |
10.00 |
100.00 |
14.00 |
71.43 |
9 |
1,000 |
11.25 |
88.89 |
14.50 |
68.97 |
10 |
1,000 |
13.40 |
74.63 |
15.00 |
66.67 |
11 |
1,000 |
14.40 |
69.44 |
15.50 |
64.52 |
TOTAL |
12,000 |
|
1,435.90 |
|
961.11 |
| Average Unit
Cost |
(Rs. 12,000/1435.9) = Rs. 8.36 |
(Rs. 12,000/961.1) =
Rs. 12.49 |
| Average Unit Price |
(Sum of Purchase price / 12) = Rs. 9.13 |
(Sum of Purchase price / 12) = Rs. 12.72 |
| Assumed NAV @ Q12 |
Rs. 14.90 |
Rs. 16.00 |
| Market Value |
(1435.9 units x Rs. 14.90) = Rs. 21,395 |
(961.11 units x Rs. 16.00) = Rs. 15,378 |
|
| |
Therefore,
the average unit cost is lower than average unit
price irrespective of market rising or fluctuating.
This happens because you get the advantage of
buying more units when the market is low and averaging
out the purchase price. |
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|
