8/6/2019 Systematic Investment Plan (SIP) - A Rupee a Day, Keeps Worries Away

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SystematicInvestmentPlan(SIP)-Arupeeaday,keepsworriesawayThisarticledescribeshowcostaveragingcanbeachievedusingMFSIPs.ItalsotalksaboutthebenefitsofSIPsagainstcostaveraginginstocks.

fonlyitwassosimple!!Mostofuslackthedisciplinetoinvestregularly-andtherefore,mostofusdon'tmakegoodprofitsfromstocks!!Theonlywaytomakeprofitinstocksisthroughregular,disciplinedinvestmentsforthelongte

rm-andthatishardtopractice!

Butthereisatoolavailablethatcanmakethisreallyeasyforyou-andthatisSystematicInvestmentPlans(SIPs)offeredbyMutualFunds(MFs)foralmostalloftheirschemes.

WhatisaSystematicInvestmentPlan(SIP)?

SystematicInvestmentPlan(SIP)isamethodofinvestinginmutualfundschemes.Usingthismethod,youcaninvestafixedamountperiodically(usuallyeverymonth)forapredeterminedperiod.

Youneedtodecidetheschemeinwhichyouwanttoinvest,andtheamountyouwanttoinvestintheschemeeverymonth.Youalsodecidethetimeperiodforwhichyouwouldwanttoinvest(thatis,howlongyouwanttomakeinvestments).

Then,allyouneedtodoisfillupaformandgivepost-datedchequesforthisamountforthenumberofmonthsyouwanttoinvest!(Thesedays,youcanalsogiveElectronicClearingService(ECS)orAutoDebitinstructionsinsteadofpost-datedcheques).

Everymonth,themutualfund(MF)woulddepositthecheque,andwouldissueyouunitsattheprevailingNetAssetValue(NAV).Yourinvestmenteverymonthremainsthesame,butdependingontheprevailingNAV,theunitsissuedwouldvary.

NumberofUnitsissued=Yourinvestmentamount/PrevailingNAV

Andthishappensautomatically-youdon'thavetotakeanyactioneverymonth!Isn'tthatgreat?SIPstakeawaythemostdifficultpartofinvestment-"discipline"-theydoitforyou!!

Youjustneedtoissuethepost-datedcheques(ormakealternatepaymentarrangements)once,andtheMFhousedoesallthehardwork!Therefore,aSystematicInvestmentPlanisthebestwaytoinvestinstockmarketsthroughMutualFunds(MFs).

CostAveragingandSystematicInvestmentPlan(SIP)

CostAveragingcallsforfixed,regularinvestments.AndSIPsdojustthat.Theyarejustmadeforeachother!

Itisverydifficulttomakedisciplinedinvestmentseverymonth-whichisrequiredinCostAveraging.SIPsdothat,andtheydoitautomatically!Therefore,SystematicInvestmentPlans(SIPs)arethebestwaytopracticeCostAveraging.

AdvantagesofSystematicInvestmentPlans(SIPs)

SinceSIPsofferawaytopracticeCostAveraging,theyalsoofferalltheadvantagesofCostAveraging(Pleaseread"CostAveraging"foradetailedexplanationofthese)

RemovetheelementoftimingthemarketfrominvestingReducetheaveragecostofacquisition

8/6/2019 Systematic Investment Plan (SIP) - A Rupee a Day, Keeps Worries Away

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Apartfromthese,thereareothergreatbenefits:

NoDisciplineneeded:Choosethescheme,givethecheques,andyouaredone!Youdon'tneedtorememberanything-theMFdoesitforyou!CompulsorySaving:Sinceyoumakeacommitmenttomakeacertaininvestmenteverymonth,itresultsincompulsorysavings.Ifyouareinvestingonyourowneverymonth,somethingmightmakeyounotinvestduringsomemonths.ButwithSIPs,youendupinvesting(andthus,saving)everymonth.Verylowmonthlyinvestmentpossible:SIPscanbestartedforamountsassmallasRs.100permonth!!Thislimitisfarlowerthanthelimitforonetime,lumpsuminvestmentintheMFschemes.So,whateveryourcapacitytoinvest,youcaninvestusingSIPs.

Favourableentryload:SomeMFhouseshavefavourableentryloadsforSIPs-theyeitherchargelessentryload,orchargenoentryloadatall.Thisresultsinsubstantialsavingsinthelongterm(Pleaseread"NoentryloadforMutualFunds(MFs)-Whatdoesitmeanforyou?"formoreonthis)AtipregardingSIPs

YoucandiversifyusingSIPs.SincetheminimuminvestmentrequiredforSIPsisverylow,youcansplityouramountbetween2-3goodMFschemes.Thus,insteadofinvestingRs.5000everymonthintheSIPofjustonescheme,youcanprobablyinvestRs.2500in2differentMFschemes.Thisway,youcandiversifyeasily.

So,whatareyouwaitingfor?Goahead,investusingSIPs,andreapthebenefitsofregularinvestmentswithoutanyeffort!

HappyInvesting!