SIP(Systematic Investment Plan)

Do you want to invest money on regularly basis in stock market but don’t have meaning of even a single word of dictionary named stock market.Then be happy you have an option that is SIP. It’s same like recurring deposit in which we invest a fixed amount at regular interval usually monthly or quarterly,but difference is only one that in SIP your money is invested in mutual fund.

By knowing that your money is going to be invested  in stock market,some investors may jittery about it because of recent financial crisis.But don’t worry if you are going for long term SIP investment,in any case you will get decent returns.

For Example:
Suppose Ram has decided to invest Rs. 1000 per year  in SIP just before market crash.At that time assume that the NAV(Net Asset Value , or the price of one unit of a fund) was Rs.10 . Now after four years of seeing a continuous market  fall lets assume that NAV has regained its past level of Rs 10. A stock market investor who has invested Rs 1000 in stock market will never be happy to see that his investment has not appreciated in last 4 years.

2006 2007 2008 2009 2010
Amount Invested Rs1000 Rs1000 Rs1000 Rs1000 Rs1000
NAV (Rs) Rs10 Rs8 Rs9 Rs7 Rs10
Units (Nos) 100 125 111 143 100

But now,what about SIP investor:

  • Total units purchased in 5 years (2006 to 2010) = 579
  • Present NAV = Rs.10
  • Present Value of Investment = Rs.5790
  • Input of Investment = Rs.5000
  • Profit = Rs.790(15.8%)

As aforementioned , even in market crash situation investor got profit of 15.8%.Then you can imagine for good market:).

Payment mode:

  • debited directly from your account.
  • post-dated cheques.

Hidden charges:

  • Entry load:It is a percentage of the amount you are investing but a number of mutual funds do not charge it.
  • Exit load:It is same as an entry load, except this is charged when you sell your units.It is charged if you are selling your units within a year.

Thus SIP is a good investment for long runs at least 5 years by which you are also developing saving habits and without realizing you are accumulating a great wealth. Last but not the least be sure that you can  shift from stock market to money market on short notice by which you can get benefit of booming market.

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