Dear uri27,
Systematic is the word that describes you. Organised, well-managed and planned in all your activities. Whether it is earning, saving or spending, everything is done in a methodical manner. Well… err… except for investing. But then you are not to blame. You never had enough money. Or, sometimes it was shortage of time. If this is the case, then it`s time you had a look at the systematic investment plan (SIP) of mutual funds. A SIP is nothing but a planned investment programme, which takes a small sum of money from you and invests it in a mutual fund at regular intervals. The minimum amount can be as small as Rs 500 and the frequency of investment is usually monthly or quarterly. This simple programme has a number of advantages.
First, if saving is an arduous task for you, then SIP can do this for you. Money deducted from your account (through post-dated cheques or ECS) and invested is money you cannot spend. And a rupee saved is a rupee earned. Even if each investment is small, over time this can add up to a neat kitty. And the power of compounding can do wonders. In due course of time, a small amount can grow into a significant amount. More importantly, an SIP does away with the need or effort to time the market. When the market is falling you may feel that it may decline further and that you should wait a while. Often stock markets make a recovery before you notice and the opportunity is lost. When markets are rising it is scary to invest money. Isn`t it better that you wait for a correction and then make an investment? But if the correction doesn`t come about, then even this opportunity is missed. And if markets are going nowhere, then what is the point in investing at all?
So, trying to find out which is the best time to invest can be a tough task. And that`s why it is said that timing the market is futile. If one could take advantage of the ups and downs that markets encounter, it would be great. And this is where SIP fits in. By the process of regular investing one gets to invest in the highs as well as the lows, and this helps in averaging out the volatility in the market.
Some mutual funds suggest that contribution to an SIP programme should be increased in a full-fledged bear market. While this may be emotionally difficult, it can be rewarding when markets recover. But then this appears very much like timing the market and the purpose of an SIP is to avoid this effort.
Thus, an SIP imparts discipline to investing. Whether it is the regular act of saving or investing, an SIP does both automatically. While there are certain benefits of an SIP please remember it is no wonder drug that cures all investment-related ailments.
An SIP does not guarantee returns or positive returns. If you opt for an SIP in a falling market and the market continues to fall, then your investments will suffer a loss on the whole. An SIP does not guarantee a better return than a one-time investment. If you made a one-time investment when the Sensex was at 2,834 points in October 2002, then this would have performed better as compared to carrying out an SIP by spreading the investment over a period of time.
The emphasis on averaging out in an SIP obviously makes it most useful in case of an equity fund, as the volatility is greater here. An SIP can be useful for a debt fund as well...to help build a pool of savings. It can be thought of something akin to a recurring deposit where a part of your savings is automatically deducted from your account.
Overall, an SIP is a simple device that helps you to save and invest in a disciplined manner without having to time the market.
Courtesy----- VROL.
Regards,
Wadia
SIP is a method of investing a fixed sum of money regularly in a Mutual Fund Scheme. It is quite similar to regular saving scheme in a bank account like a recurring deposit. The only difference is that there are good chances of getting a better return than a bank deposit when investing in stocks.
Benefits Of SIP
* SIP offers you tax benefits which could come in handy if have to pay income tax.
* Regular Investment makes you disciplined in your savings and also leads to wealth accumulation.
* SIP comes with a locking period, so even if you wish to spend you cannot as the funds are locked and cannot be taken out.
* In SIP, invest as low as 100, 250, 500 or 1000 rupees. There is no need to worry if you do not earn a lot of money as you can still be a market investor with as low as 500 a month and even that would come up to be quite a good sum after a few years.
* In SIP, you invest in mutual funds where your investments are managed by market experts and professionals who have good knowledge in this field, so you have a chance to do much better than that of investing yourself alone.
* In SIP, you will be purchasing units at all phases of the market, high or low, depending on that you get the units share and so you dont need to worry about market going up or down. But just have to wait for the right time to take out your money after the scheme is over and no more deposits are being done. Thus your investments get averages out at the end and the loss is very limited which isnt the case when you invest all at once.
For more, go to:
htt p://w ww.rediff. com/getahead/2005/nov/09sip. htm
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There are Pros and Cons of everything in this world.
Same applies on SIP also.
1. In rising markets:
An SIP may not be able to lower the average purchase cost if equity markets rise in a secular manner. In such a scenario, the average purchase cost could actually rise. So in a market rally, SIPs could prove to be more expensive vis-à-vis a lump sum investment.
2. A directionless SIP:
A directionless SIP is one that does not form part of an investment plan; in other words, it’s an aimless SIP. The SIP is not an ‘end’; instead, it is the ‘means’ to achieve an end. Hence an SIP in isolation does not make ‘financial’ sense. Instead, the SIP should form part of an investment plan aimed at achieving a predetermined objective (like providing for a child’s education or buying a house).
3. An SIP in a poorly managed fund:
Investing via an SIP doesn’t improve the prospects of a poorly managed fund. Such a fund stays the same, irrespective of the investment mode. Its shortcomings will not be eliminated by an SIP. Hence the key lies in first selecting a well-managed fund that is right for the investor and then investing in it via an SIP.
As can be seen, the SIP mode of investing has a fair number of advantages to offer; conversely, there can be instances when it may not deliver as expected. Investors on their part should make well-informed investment decisions after acquainting themselves of both the pros and cons.
TOP 5 PICS
1) DSP BlackRock top 100 Equity Fund
2)HDFC Top 200 Fund
3) SBI Magnum Contra Fund
4)IDFC Premier Equity Fund
5)Reliance Diversified Power Sector Fund
Even if you start SIP for long term, make sure, you check the performance of the schemes at-least once in a year and take corrective action (if needed).
You can start SIP in following:
HDFC Top 200
RSF Eqtuiy
IDFC Primier Equity
BSL Frontline Equity
HDFC Prudence
- Sundaram BNPP S.M.I.L.E. Fund or
Tata Equity PE Fund
Monitor the Performance of Funds Regularly
( at least once in a year)& DONT Hesitate to Change from Poor Performing Fund if Performance is below Average continuously for 2 years or more.
| NIFTY 
