SIP: Start early, Save
regularly
[4]
down to `10 (in March, the NAV is `20; in April, its `18; in
May, its `17, and so on). In that case, you are able to buy more
number of units at lower costs. So, the aver-age cost of units
acquired over the period is lower as compared to, say, buying units
at one go through a lump sum investment into the mu-tual fund
scheme*. If the market goes up, the NAV will also go up so, and you
can earn better returns.
SIP and dIScIPlIned aPProachOne of the major advantages of SIP
is that it helps one in becoming a disciplined investor, as a fixed
sum is deducted from the investors bank account each month in
accordance
with the mandate given. Therefore, one need not fill out the
applica-tion and sign a cheque every time one has to make an
investment. Also, investors can start SIPs with amounts as little
as `500.
Better returnSThe SIP format of investing incul-cates discipline
in the investor, as he or she consistently invests a fixed sum of
money at regular intervals. Through SIP, one can stay invested over
the longer term, where ups and downs of the stockmarket would get
averaged out, thereby offering better returns. Therefore, SIP
pro-motes the culture of investing by giving better returns and by
allow-ing the investor to invest bit by bit
an investor education andawareness initiative From hdFc mutual
Fund
DISCLAIMERMUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET
RISKS,
READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.As part of its
Investor Education and Awareness Initiative, HDFC Mutual Fund has
sponsored this supplement on Systematic Investment Plans (SIP) in
Mutual Funds. The contents, views, opinions and recommendations
in
this supplement and the computations of the calculator are those
of the Publication and they do not necessarily state or reflect the
views of HDFC Mutual Fund/ HDFC Asset Management Company Limited
(HDFC AMC). HDFC Mutual Fund / HDFC AMC has not verified the
contents of this supplement nor do they accept any
liability arising out of use of this information.
* SIP does not assure a profit or guarantee protection against a
loss in a declining market.
[2] [3]an investor education and
awareness initiative From hdFc mutual Fund
SyStematIc InveStment Plan
What IS an SIP?A systematic investment plan (SIP) is a way of
investing in mutual funds (MFs) in which one invests a fixed amount
every month on a pre-specified date. Almost all mutu-al fund
schemes provide the facility of SIP. This is a good investing
op-tion for a first-time investor who is trying to bring discipline
into his or her investing process.
hoW It WorkS?Mutual funds provide an option of choosing an SIP
either on a month-ly or a quarterly mode on a specific date. Where
one opts for a monthly SIP, one can do it by signing 12 post-dated
cheques of equal amounts. Another option is to authorise your bank
to debit the amount by filling the electronic clearing service
(ECS) form. If one gives an ECS mandate,
the bank will automatically debit the specific amount every
month on a specific date available with the scheme, from your bank
account.
BenefItS of StartIng early The early birds always have an
ad-vantage over those who are off the blocks late. They manage to
save a decent pile for their requirements with much less fuss.
Usually, people at young age undermine the importance of saving
small sums of money and keep procrastinating, pushing the start to
a later date.
Besides, they often perceive invest-ing as a cumbersome process.
This is where SIP comes in handy, A good way to save through MFs is
to set aside a certain amount of ones income for them. This,
besides help-ing one make forced savings, also gives one a
financial headstart.
PoWer of comPoundIng The rule of the thumb is to invest
regularly and keep reinvesting the returns. Compounding is a simple
concept that offers astounding re-turns in the long run. With
simple interest, you earn interest only on the principal whereas
with com-pounding, you earn interest on the principal and
additionally on the
interest. In other words, its a way of making your money work
hard-er for you. Lets consider what the power of compounding does
to an SIP of `500 a month in a scheme
that offers a conservative 12 per cent return, over 30 years.
The to-tal investment of `1.80 lakh (prin-cipal) grows to `15.26
lakh over that period.
hoW SIP helPS In rIdIng market volatIlItyAn SIP is a regular
investment plan available on all kinds of mutual fund schemes,
though it works best with equity schemes. SIPs help the investor
make profit from stock-market volatility by automatically buying
more units when prices are falling and fewer units when prices are
rising, thus lowering the aver-age purchase price.
hoW SIP helPS In ruPee coSt averagIngWhen one invests through
SIPs, he or she buys into the fund at dif-ferent net asset values
(NAVs). For instance, when the market is ris-ing, the same
investment fetches the investor less units at a higher NAV and when
the market is down, the investment buys more units at a lower NAV.
Over long periods of time, investors average out their investments
as they accumulate more in a bear market and less in a bull market.
Lets suppose you were to start an SIP in a fund in January at the
prevailing NAV of `20 for six months. Now, the market goes down for
six months and the NAV comes