Spend, Save and Invest Smartly

SIP - Systematic Investment Plan

Today’s world has offered us with lot of attractive things, which leave us empty handed at the middle of the month itself. We have lot of needs to take care of, lot many things to buy, different loans and EMIs to repay and many dreams to plan as well. But it is very difficult to plan and realize those needs and plans successfully, because we may not be able to procure funds for these things in time. Even if you start saving money to serve these things right from the day one you dreamt of, the inflation and sky rocketing price hikes will ultimately let you down.

Therefore, we need to plan our savings and investments in a more structured and profitable way. Obviously, there are different investment tools available in the market which gives you good returns and flexibility as well. But, these investment tools may not develop the habit of regular investment in us. One of my ex-colleague was telling me that have a habit of buying one gram gold every month. Of course that is a very nice idea but it won’t help us to serve our short term needs as keeping gold is little risky and returns are very less in the short term.

Now, I would like to introduce you all a well-known investment tool called SIP (Systematic Investment Plan) with its unique features.

The Systematic Investment Plan allows investors to save a fixed amount of rupees every month or quarter for the purchase of additional units in a mutual fund. SIP helps us to plan our retirement, childrens education, wealth creation and finacial planning as well.

SIP mainly helps us to get addicted to an investment principle :

Income – Savings = Expenditure, instead of following the principle of –
Income - Expenditure = Savings.
Investing through SIP can offer the following benefits:

It helps to Build Wealth over the Long term – "the compounding effect"

The key to building wealth is to start investing early and regularly. These regular amounts of savings, however small they may be, can possibly grow into a substantial amount of wealth over the long-term. Therefore, if you have to save regularly, it makes sense to pay yourself first and that is the only way to increase your savings.

Look at the following example and you may be pleasantly surprised at the benefits of investing systematically over the

Long-term :
An investment of Rs. 1,000 per month in an instrument yielding a net compounded return of 12% per annum, over a period of 30 years, can grow to over Rs. 35 lacs.
It will take only 33 years to achieve Rs. 1 crore, if invested Rs. 1000/- per month and money grows at 15% p.a.
It will take only 28 years to achieve Rs. 1 crore, if invested Rs. 2000/- per month and money grows at 15% p.a.
It will take only 25 years to achieve Rs. 1 crore, if invested Rs. 3000/- per month and money grows at 15% p.a.
In the short run a 1% differential in the rate of return may not matter as much, but in the long run it can be significant.

What you must know about dividends?

The dividend is not guaranteed. If a fund declared dividends twice last year, it does not mean it will do so again this year. You could get a dividend just once or you might not even get it this year. Generally, funds whose NAV is above 10 are in a position to consider a dividend. Remember, though, declaring a dividend is solely at the fund's discretion; the periodicity is not certain nor is the amount fixed.

Make the volatility of the market work in your favour – the rupee cost averaging

Securities markets (equities and fixed income instruments) can be volatile and it is rarely possible to predict the future and time the market. We can seldom accurately predict when a particular stock will move up or where the interest rates are headed. Since the amount invested per month is a constant, the investor ends up buying more units when the price is low and fewer units when the price is high. Therefore, the average unit cost will always give the benefit of investing when the market is rising, falling, or fluctuating. This concept is called Rupee Cost Averaging.

Load Structure

Most of the Asset management companies had waived off entry load in equity mutual funds if the investor is investing through SIPs.

Other Advantages

Investor is forced to save some amount if he wants to achieve a certain target amount Asset management companies had tied up with few banks for direct debit in their account of the investment amount Minimum amount to start with SIP is as low as Rs. 500/- per month.

Mutual Funds
Mutual Funds