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Introduction of Systematic Investment Plan
 
:: Systematic Investment Plan – A better way to build Wealth over the Long Term
 
Systematic Investment Plan or SIP is a disciplined way of investing one's money in order to take advantage of the volatility in the market, and thus drawing maximum benefit out of our investments over a longer period of time. The plan aims at a better future for its investors.
 
How it Works?

It works on the principle of Rupee Cost Averaging (‘RCA’) by which one puts in a certain sum of money every month in a mutual fund regularly, the prevailing NAV of the fund determines the number of units that will be allocated to you. Thus, it reduces the market timing problem. To illustrate this lets compare investing the identical amounts through a SIP and in one lump sum.
 
Concept of Rupee Cost Averaging
Imagine Karan invests Rs.1000 every month in an equity mutual fund scheme, starting in January. His friend, Arjun, invests Rs. 12000 in one lump sum in the same scheme. The following tables illustrate how their respective investments would have performed from Jan to Dec:
 

 

 Karan's Investment        Arjun's Investment
Month NAV Amount Units Amount Units
Jan-01 9.345 1000 107.0091 12000 1284.1091
Feb-01 9.399 1000 106.3943    
Mar-01 8.123 1000 123.1072    
Apr-01 8.750 1000 114.2857    
May-01 8.012 1000 124.8128    
Jun-01 8.925 1000 112.0448    
Jul-01 9.102 1000 109.8660    
Aug-01 8.310 1000 120.3369    
Sep-01 7.568 1000 132.1353    
Oct-01 6.462 1000 154.7509    
Nov-01 6.931 1000 144.2793    
Dec-01 7.600 1000 131.5789    
Total

 

12000 1480.6012 12000 1284.1091
 
As seen in the table, by investing with a SIP, Karan ends up buying more units when the price is low and fewer units when the price is high. However, over a period of time these market fluctuations are generally averaged. And hence the average cost of the investment is often reduced.
 
At the end of the 12 months, Karan has more units than Arjun, even though they invested the same amount. That's because the average cost of Karan's units is much lower than that of Arjun. Arjun made only one investment and that too when the per-unit price was high. Karan's average unit price = 12000/1480.6012 = Rs. 8.105 Arjun's average unit price = Rs. 9.345.
 
 
 
How to start an SIP?
 
When you get your salary cheque, you promise yourself you will start saving by putting aside a little sum every month. But, all you do is make the same promise month after month, and you just end up making the promise every month, but no saving really happens.
Assuming that you have an appetite for a little risk, the best way to keep the promise is to start a systematic investment plan with a mutual fund scheme
  • Pick any date of a month, and then fill out an SIP form and an application form.
  • Draw post-dated monthly adding up to at least minimum investment of scheme or you can choose ECS Scheme.
  • Monthly - Start with any dates of any month, and stick to the same date of every month.

If in any month the chosen date is not a Working Day, the transaction will be completed on the next Working Day.