systematic investment plan. sip works on the principle of regular investments. it is like your...

Systematic Investment Plan

SIP works on the principle of regular investments. It is like your recurring deposit where you put in a small amount every month. It allows you to invest in a MF by making smaller periodic investments (monthly or quarterly) in place of a heavy one-time investment. Though investments through SIP may not seem appealing at first, it enables investors to get into the habit of saving. And over the years, it can really add up and give you handsome returns.

While making small investments through SIP may not seem appealing at first, it enables investors to get into the habit of saving. And over the years, it can really add up and give you handsome returns. For instance, a monthly SIP of Rs 1000 at the rate of 9% would grow to Rs 6.69 lakh in 10 years, Rs 17.83 lakh in 30 years and Rs 44.20 lakh in 40 years.

Power of compoundingIt is recommend that one must start investing early in life. One of the main reasons for

doing that is the benefit of compounding. Let's explain this with an example.

Age of Investment ( Start) 25 years 30 years

Monthly Investment 5,000.00                  5,000 .00

No of years 35 30

Total Investment              2,100,000.00              1,800,000.00

Rate of Returns 15% 15%

Corpus Built            73,385,901.00 34,616,398.00

This is especially true for investments in equities. When you invest the same amount in a fund at regular intervals over time, you buy more units when the price is lower. Thus, you would reduce your average cost per share (or per unit) over time. This strategy is called 'rupee cost averaging'.

People who invest through SIPs capture the lows as well as the highs of the market. In an SIP, your average cost of investing comes down since you will go through all phases of the market, bull or bear.

Regular Date Investment (Rs.) Price per Unit (Rs.) No. of Units received

June 2012 5000.00 10 500.00

July 2012 5000.00 9 555.56

Aug 2012 5000.00 9 555.56

Sept 2012 5000.00 8 625.00

Oct 2012 5000.00 7 714.29

Nov 2012 5000.00 8 625.00

It's a way of making the value of your investment grow at the same time as removing the difficulty of "timing the market". In the long run, investing on a regular basis also helps to reduce your overall risk.

Let us see another example :

The returns of long term SIP’s in some of the selected schemes are shown below :

For 10 Years :

Scheme Name Total Amount Invested(Rs) Present value(Rs) XIRR(%)

Birla SL Frontline Equity Fund(G) 1,20,000.00 2,84,418.55 16.6920

Franklin India Bluechip Fund(G) 1,20,000.00 2,58,987.02 14.9254

HDFC Top 200 Fund(G) 1,20,000.00 2,79,434.58 16.3591

Scheme Name Total Amount Invested(Rs) Present value(Rs) XIRR(%)

Franklin India Bluechip Fund(G) 1,80,000.00 8,68,927.67 19.0813

HDFC Top 200 Fund(G) 1,80,000.00 10,81,708.11 21.5773

Reliance Growth Fund(G) 1,80,000.00 14,58,296.07 24.9669

For 15 Years :