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SIP, defined as Systematic Invest Plan, is a vehicle offered by mutual funds to help you invest regularly. Just like a recurring deposit with the post
office or bank you can increase your mutual fund holding by adding a preset amount (as small as Rs. 500) via an SIP. The frequency of investment is
usually monthly or quarterly.
Through a SIP you invest in a mutual fund on regular basis irrespective of the market movement. For example, if you would have committed yourself to
invest lets say Rs 1000 every month for year 2006 in ABN AMRO Equity Fund, following would have been the result:
Approx
number of
Date Nav in Rs. units you
will get at Rs
1,000
Absolute
9.60% 22.78%
Return
SIP gives 137% more return than simple one time investment!
In first case you get fewer units and in Second Case you get more units because you keep on buying at low NAVs. Hence by using SIP you gain
137.3% more.
Why use a SIP?
Following are some of the key benefits of a SIP
Creates discipline in your investing activities: You are forced to direct some of your earning every month in a mutual fund of your choice. This
could either be debited directly from your account or you could give post-dated cheques to the mutual fund.
No need to second-guess the market: Stock market has a habit of fluctuating frequently without any warning, at least not to an individual
investor. Though SIP an individual investor can initiate a wealth building system without worrying about market ups and down. For example,
if you would have invested in Prudential ICICI Technology Fund during the dotcom and tech boom and subsequent slowdown in the sector
following would have been the result:
Now take a look how some funds performed when invested SIP way
in last 3 years
Isnt it amazing!
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