Systematic Investment Plan (SIP) is a mode of investment wherein you systematically plan the same. Designed for those who cannot read the market very well and/or do not wish to take much of risks, the potent SIP investor deposits (rather invests) a particular sum in mutual fund periodically (say monthly or quarterly). For example: the investor invests Rs.1000 on the 1st of every month.
** The best NRI investment firm that can help non resident Indians, person of India origin (PIO) and overseas citizen of India (OCI) to invest SIPs is: www.NriInvestIndia.com
SIP is important, not only from the ‘safety’ point of view, but for other reasons as well. SIP, for one, guarantees good returns in the long-term, even if it’s not profitable enough compared to other investment techniques available in the market. SIP reduces market risk potentially and also saves time, effort and money as you are investing periodically, instead of investing one-time.
In this segment, we will tell you how to begin SIP, look at examples and learn how it reduces risks.
To begin SIP, three steps need be followed:
1) Decide how much your wallet allows you to invest and make sure you invest the same amount periodically (monthly or quarterly) else SIP will not be effective
2) Select your investment type that you think will benefit you and hold it for five, ten or more years
3) Invest in your holding at per your chosen period without fail. If your broker so advises, you may set up an automatic withdrawal plan making the process automated.
An example of SIP would be as follows:
Supposing you wish to invest Rs.15000 in ABC Stock. If you go in for a one-time investment and invest the entire amount, say in January 2008, you would have purchased 264.46 shares @ a price of Rs.56.72 each, making your total shares, by the end of December 2010, worth Rs.3620 @ Rs.13.69 each. But, if you opt for SIP, you would have shares worth Rs.10216 implying you hold 746.21 shares!
To go a step further, without Systematic Investment Plan you would break even at Rs.56.72. With Systematic Investment Plan, you would have turned a profit of Rs.27326 when the stock hit that price thanks to your lower cost basis (Rs56.72 sell price – Rs.20.10 average cost basis = Rs.36.62 profit x 746.21 shares = Rs.27326 total profit)
Combined power of SIP and Diversification of Indian Mutual Fund
Index funds are passively managed mutual funds designed to mimic the returns of benchmarks like S&P 500, Dow Jones Industrial Average (DJIA) etc. To give an example, if an investor puts money into a fund designed to mimic the Wilshire 5000 will own a fractional interest in every one of the five thousand stocks making up that index. The instant diversification comes with the added bonus. Though management fees of passive funds are one-tenth less than their active counterparts, in the span of ten years, this will add up to thousands of rupees that the investor would have otherwise paid to the Mutual Fund company. The SIP reduces market risk while the index-fund investment reduces company specific risk. This is perhaps the best combination available for potential investors.
The Share Market is extremely fickle and NRI trading online in the same may either lead to huge profits for the investor or become a reason for ‘cardiac problems’!
Opening up NRI account and investing into Systematic Investment Plan will take care of the latter for sure, though it does not guarantee the former. As mentioned before, Systematic Investment Plan, or SIP, permits investors to invest (or save) a particular amount in Mutual Funds in India periodically. This mode of investment proves beneficial to not only those who do not want to take much risks, but for anyone and everyone who wishes to have guaranteed returns, and has the time to wait for at least five years.
BENEFITS OF SIP
The average annual income of an Indian is Rs.25000. Given this fact; going for an Rs.5000 one-time investment is asking a lot. So for all of you having light wallets, fear not. SIP is for you! Instead of shelling out Rs.5000 together, you can invest the same amount minus a zero, that is Rs.500, in a Mutual Fund periodically! And who knows, you might perhaps get greater returns than you would have otherwise got had you gone in for an one-time investment.
Secondly, an investment done through SIP is not affected by capriciousness of the market. Studies have shown that stocks are more able and have outperformed other assets when it comes to long-term investments. Not only this, they have also at times, out classed inflation! As you invest periodically, returns through SIP are not affected by the highs and lows of the market.
Are you thinking about your child’s education, daughter’s marriage, or buying a house for yourself? Don’t know where the money will come for all these long-term goals? Well, don’t worry. Start investing through SIP and send your child for higher education to Harvard, arrange your daughter’s wedding in a posh five-star hotel, and get a mansion built for yourself! We are not helping you to fantasise, we are talking about making your dreams come true. But please remember that all this will not happen overnight. You have to plan and start saving/investing today for making possible all the above-mentioned, say ten years from now. If you set aside from your salary a meagre sum of Rs.500 every month/quarter, and invest the same in the Share Market through SIP, we promise you will be able to fulfil all your dreams in at least five years from now.
Ever heard of the phrase ‘Early bird gets the early worm’? It is not just part of a folklore. This stands true for the investors as well. And this is because of finance’s thumb rule – compounding. Let’s suppose there are two investors, A and B, and both start investing in the market, at the same day and time, Rs.1000 per month at an age of 25 years and 30 years respectively. By the time both are 60 years, A would have Rs.80 lakh ($8m) while B would have only Rs.40 lakh ($4m). A difference of just 5 years in age can divide your money by half! So don’t waste time and start investing your dime. Now!
Lastly, SIP works better than trading in Indian shares or as opposed to one-time investment and lowers your average cost because of the concept of rupee-cost averaging. Following this concept, a typical investor will be able to buy more when the market falls and consequently the price of the shares fall, and less when the market is high and so are the share prices. Thus, while one-time investors may fringe when the market falls, SIP investors rejoice!
*** If you are an NRI who wants to Invest in SIP of top performing Indian mutual funds then you should contact http://www.NriInvestIndia.com
All you need is an NRI Bank account + PAN Card to get started.