WHAT IS SIP?
Systematic Investment Plan
SIP is abbreviated as “Systematic Investment Plan”, basically it is the simplest way of investing and needs discipline to invest in regular intervals.
Generally people save money on a monthly basis (mainly by homemakers). It may be Rs.500 or Rs.1000, it is one of the great habits which leads to good outcome.
But, some people will think a step forward and will invest in traditional instruments like recurring deposits and postal deposits. By investing in these instruments how much returns investors are getting?
The interest rate ranges from 5% to 7% per annum.….!
Now think one more step forward and invest the same amount in Mutual funds to get higher returns ranges from 9% to 12% per annum..!
As of now and as well as in future there will be a lot scope for mutual fund investments in India. In the current situation most of the people showing interest towards investments like mutual funds and stocks too.
In Mutual funds we can invest in two ways:
- Lump sum : Investing a bulk amount
- SIP (systematic investment plan)
Most of the financial advisors suggest to go with SIP rather than lump sum investment, this is because investing in long term with regular intervals will get benefited by “Rupee Cost Averaging”.
Benefits of SIP:
- Easy way to invest (online)
- No need to worry about market conditions
- Will get more number of units when market is low
- We can invest in a disciplined manner
- Start as early as possible to enjoy the benefit of the power of compounding.
- Entry and exit are very flexible with no lock in period expect in ELSS (3 years)
Example given: Observe below table , with Recurring deposits/ Postal deposits Vs Mutual funds (SIP)
| SIP per month | Actual amount invested in 25 years | Returns in 25 years @ 6% with Recurring deposits/ Postal deposits | Returns in 25 years @ 7% in Mutual funds
(Debt) |
Returns in 25 years @ 9% in Mutual funds
(Hybrid) |
Returns in 25 years @ 12% in Mutual funds
(Equity) |
| Rs.1000 | Rs.3,00,000 | Rs.6,79,000 | Rs.7,89,000 | Rs.10,65,000 | Rs.17,02,000 |
| Rs.2000 | Rs.6,00,000 | Rs.13,59,000 | Rs.15,74,000 | Rs.21,30,000 | Rs.34,04,000 |
| Rs.5000 | Rs.15,00,000 | Rs.33,97,000 | Rs.39,37,000 | Rs.53,26,000 | Rs.85,11,000 |
Note: Approx. Rs.50 lakhs difference is seen with change in interest rate from 6% to 12% with the same amount of Rs.5000 invested for 25 years.
General myths about SIP:
Myth 1: SIP is only for smaller investors!
As SIP defined ,” it is a systematic investment with regular intervals”, We can start with a minimum amount of Rs.500 per month and maximum amount as much as you can i.e. one lakh.
Myth 2: SIP is not preferred during a bullish market!
Under any circumstances (it may be bullish or bearish) don’t stop SIP in any market conditions, because you can enjoy benefits of “Rupee Cost Averaging” in the long run.
Myth 3: Once SIP is started with fixed amount it cannot be changed!
SIP is designed in such a way that we can modify it as per our wish in terms of time and money.
Example given:
Investing amount: Rs.1000 to Rs.5000
Tenure/ Intervals: 5 years to 10 years/monthly to quarterly
Myth 4: SIP returns are guaranteed!
There are no guaranteed returns in mutual funds but, on the basis of past performance mutual funds gave returns ranges from 9% to 12% per annum.
Risk More Return More.
Myth 5: SIP once started cannot be stopped!
As said earlier the entry and exit are flexible, but there is a lock in period only in ELSS for 3 years.
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Disclaimer: Mutual fund investments are subject to market risk, do complete analysis or take professional help before investing.
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