X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Systematic Investment Plan: A study - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 1, 2001

    Systematic Investment Plan: A study

    What is Systematic investment plan (SIP)?
    SIP is an investment option that is presently available only with mutual funds. The other investment option comparable to SIPs is the recurring deposit schemes from Post office and banks. Basically, under an SIP option an investor commits making a regular (monthly) investment in a particular mutual fund/deposit.

    How to invest in SIPs?

    • The SIP option is available with all types of funds like equity, income or gilt.

    • An investor can avail the SIP option by giving post-dated cheques of Rs 500 or Rs 1,000 according to the funds’ policy.

    • If an investor wants to put more than Rs 500 or Rs 1,000 in any given month he will have to fill in a new a form for SIP intimating the fund that he is changing his SIP structure. Also he will be allowed to change the SIP structure only in the multiples of the SIP amount.

    • If an investor is investing in two different schemes of the same fund he can fill in a common SIP form for all the schemes. However if the first holders in those schemes are different than they will have to fill different SIP forms, as the first holder has to sign on the form.

    • The investor can get out of the fund i.e. redeem his units any time irrespective of whether he has completed his minimum investment in that scheme. In such a case his post-dated cheques will be returned back to him.

    Lets take an example:

    • An investor, ‘Rahul’ wants to invest in fund ‘X’ which can be an equity, income or gilt fund.

    • The policy of fund ‘X’ for entering in an SIP is that the investor will have to issue 6 post-dated cheques of Rs 500/- in case of monthly option or 4 cheques in a quarterly option. The minimum investment for all its schemes is Rs 5,000. ‘Rahul’ issues 6 post-dated cheques of Rs 500/- each in the name of fund ‘X’, with the first cheque being dated as on 7th May 2001.

    • Now in the month of August 2001 ‘Rahul’ wants to change his SIP structure from Rs 500/- to Rs 1,000/-. In this case he will have to intimate the fund and will have to fill a new SIP form issuing news post-dated cheques of Rs 1,000/- each.

    • ‘Rahul’ is investing in three different schemes of fund ‘X’. In two of the schemes ‘Rahul’ is the first holder and in the third scheme his wife is the first holder. In this case he can fill a common SIP form where he is the first holder and where his wife is the first holder he will have to fill in a new SIP form.

    • In the month of September 2001 ‘Rahul’ wants to exit from the fund. He will have to just give a redemption request to the fund wherein his units will be redeemed and his remaining post-dated cheques will be returned back to him irrespective of whether he has completed his minimum investment in the fund.

    Investing in SIPs is also known as Rupee cost averaging. The advantage of rupee cost averaging is that the Net asset value (NAV) is averaged out, as the investor will be entering the fund at different NAVs, which may be higher or lower depending on the market condition.

    Lets take the example of ‘Rahul’ wherein he has started investing in units every month since he issued the first cheque on 7th May 2001. In this example we assume that he does not change his SIP structure and also does not redeem the units.

    Investment in fund 'X' of Mr. Rahul
    Period Investment(Rs) NAV(Rs per unit) Units allocated
    7th May'01 500.0 10.0 50.0
    7th June,01 500.0 13.0 38.5
    7th July'01 500.0 10.5 47.6
    7th Aug'01 500.0 9.5 52.6
    7th Sep'01 500.0 8.0 62.5
    Total a=2,500   b=251.2

    Actual average NAV (Rs.) = Rs 10.2 per unit
    NAV for Rahul= Rs 9.95 per unit (a/b)

    The above table shows clearly how rupee cost averaging works and how it was beneficial to ‘Rahul’. The actual average NAV of a fund is Rs 10.2/- per unit, but the average NAV for ‘Rahul’ is Rs 9.95/- per unit, which is lower than the current NAV.

    An investor who is not having a lump-sum amount to invest and also does not want to take much risk on his investment should always select a ‘Systematic Investment Plan’ option. This will enable him to invest regularly i.e. improve investing discipline. Also, the investor stands to benefit from rupee cost averaging.

    If you are in Mumbai and are interested in mutual funds or other investment products, please register here

     

     

    Equitymaster requests your view! Post a comment on "Systematic Investment Plan: A study". Click here!

      
     

    More Views on News

    The Right Financial Advisor Is Around the Corner (Outside View)

    Mar 10, 2016

    An opportunity to find an impeccably trustworthy and competent financial guardian is in the offing.

    Why financial planning should be dull and boring (Mutual Fund Corner)

    Feb 29, 2016

    Most financial planners come out as whiz kids who throw around financial jargon. But financial planning can be actually easy, provided one follows a disciplined approach.

    What Are E-Wallets And How To Use Them (Mutual Fund Corner)

    Feb 12, 2016

    PersonalFN highlights the benefits of parking a portion of your expenses in e-wallets and using them efficiently.

    Is Consumption Boom Over In India? (Mutual Fund Corner)

    Feb 2, 2016

    Mutual funds take a bearish call on the FMCG sector. The sector has started playing out due to a combination of slower growth and expensive valuations.

    How to Find a Saint Amongst Sinners? (Mutual Fund Corner)

    Feb 1, 2016

    Ethical practices help build long lasting relationships, and healthy long-term business relationships are often mutually rewarding. But PersonalFN is of the view that the financial services industry in India seems to have forgotten this.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    MARKET STATS