Systematic investment plan

To know about systematic investment plan, it is important to know about investment. INVESTMENT is putting money into something with the expectation of gain that upon thorough analysis has a high degree of security for the principal amount, as well as security of return, within an expected period of time. In contrast putting money into something with an expectation of gain without thorough analysis, without security of principal, without security of return is speculation or gambling. In finance, investment is the commitment of funds through collateralized lending, or making a deposit into a secured institution. Investments are often made indirectly through intermediaries, such as banks, Credit Unions, Brokers, Lenders, and insurance companies. Though their legal and procedural details differ, an intermediary generally makes an investment using money from many individuals, each of whom receives a claim on the intermediary. In simple words we can say investment is the process of using your money to try and make more money by committing it to some specific endeavor. Advantages Investing is the process of making your money work for you, instead of simply sitting safely in the back, and it is increasingly a necessity of modern life. It is frequently no longer possible for an individual to work in one job all their life and retire on their pension. People move from job to job, or from career to career, and due to government cutbacks the responsibility for providing for their retirement falls increasingly on the individual. By investing your money wisely you can make a profit that you can then re-invest or put aside as a nest-egg. A good return on an investment can maximize earning potential. Disadvantages The major disadvantage of investing is that it is always possible to lose money on whatever investment you make. If you invest in a rare collectible, the value of it can rise or fall depending on its popularity and its availability on the market. Stock

prices fluctuate based on everything from how the competition is doing to public confidence in the market. Investment is not a gamble so we need to plan before investing. One of the special investment plans is systematic investment plan. Before opting for SIPs SIP option is available for all types of funds. This arises the need for investors to do a little homework in order to get the maximum returns out of their investment. Defining the investment objective Investors should invest with a clear objective in their mind. It helps to figure out an indicative time period for which the investments would have to be made. Determining the investment surplus Investors should estimate the amount that they can afford to invest on a periodical basis. Investors should be conservative while making this estimate as an over estimated periodical investment amount may turn out to be a burden for investors. Matching periodicity to fund flows SIPs are available in monthly and quarterly options. Investors should opt for an option that is in tandem with the periodicity of cash inflows. Selecting an appropriate scheme category Before investing investors should take the risk- return profile of a scheme into consideration. Investors should choose a scheme that suits their investment objective. For example: Equity funds are recommended to investors who have a high risk taking capacity, debt funds for risk-averse investors and balanced funds for investors with moderate risk taking capacity. Performing fund manager All fund schemes are managed by a fund manager. Investors should select a scheme which is managed by a proven and successful fund manager. However, past performances do not assure good returns in the future, but do form a basis for decision making. Ignore the market swings In the short term, sentiments drive the movements in the market. Therefore, investors should not let a short term correction or fall in the markets to bother them. As long as the long term prospects are intact, the investments are safe.

 Periodical review of investments After selecting an appropriate scheme and making investment in it, investors should continuously monitor the performance of similar schemes to the one in which the investment is done. This enables investors to compare the performance of their scheme with corresponding schemes and make necessary adjustments, if required. Systematic investment plan is a vehicle offered by mutual funds to help you save regularly. It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a mutual fund. The minimum amount to be invested can be as small as Rs 100 and the frequency of investment is usually monthly or quarterly. Systematic investment plan is a scheme which allows investors to invest in a mutual fund a certain amount of money over a period. For example, investors can invest Rs 5000 in a mutual fund every month. We all have various financial obligations. Some of them like daily needs, school fees, etc involve the major outgo of your cash. Others like trip for your family or buying a fancy gizmo entails a onetime payments for which money can be relatively easily collected. But for long term goals like retirement or purchasing a home require you to save and invest for many years. Yet irrespective of the amount involved and the time horizon, planning and investing money systematically and regularly enables you to sail through these obligations. A SIP could prove to be a simple and effective solution toward achieving these goals. A SIP is a method of investing in mutual funds, by investing a fixed sum at a regular frequency, to buy units of a mutual fund schemes. It is quite similar to a recurring deposit of a bank or post office. For the convenience, an investor could start a SIP with as low as Rs 500; however this amount may differ from one fund house to other. Systematic investment plan offers periodical investment option, which is especially designed for those investors, who do not want to invest their money lump sum in fact it is for those who want to invest their money in mutual funds but in periodic intervals. It works similar to the process of deposit money every month in a bank but difference is that of course it is an investment in mutual funds. The prime goal of this investment plan is to help investors to identify their

investment objectives and help them out to achieve these goals by giving them systematic investment mechanism of equity related mutual funds. These mutual funds provides steady investment plan but all the value depends on the portfolio of the mutual fund. Many analysts think that systematic investment plan and monthly income plan is somewhat the same thing with different names. The difference is systematic investments plan is managed by a group of investment professionals, who have expertise in risk assessment and reduction, portfolio management and diversification, minimize trading cost, flexibility of liquidity, and access to corporate information. Simply it is a most simple, time oriented formula crafted to help investors for accumulating money over longer course of time. It is considered to be a most effective strategy to invest money in volatile markets. . This opportunity allows investors to buy shares on regular schedule. Mostly this is done through account deduction. It has the ability to handle the volatility of the market in disciplined way. It is the best technique to mitigate the risk of investors pool money. This is the best way for individuals to earn returns on safe investment through systematic investment plans. This is the best way to get a start to your investment and enter into a mutual fund. It is a long term investment plan in which you cant withdraw your money immediately, it takes at least two to three years, when you can withdraw your money. Despite all this, systematic investment plan is the safest option for investment in mutual funds. Remember systematic investment plan is the plan which helps you to achieve your investment goals rather a tool which improves your returns.

How a SIP works An SIP allows you to take part in the stock market without trying to second-guess its movements. An SIP means you commit yourself to investing a fixed amount every month. Let's say it is Rs 1,000. When the Market price of shares fall, the investor benefits by purchasing more units; and is protected by purchasing less when the price rises. Thus the average cost of units is always closer to the lower end.) {NAV: Net Asset Value, or the price of one unit of a fund. Can be computed as follows: NAV = [market value of all the investments in the fund + current assets + deposits - liabilities] divided by the number of units outstanding.} Date NAV Approx number of units you will get at Rs. 1000 100

Jan 1 10

Feb 1 10.5 95.23 Mar 1 11 Apr 1 9.5 May 1 9 90.90 105.26 111.11

Jun 1 11.5 86.95

Within six months, you would have 589.45 units by investing just Rs 1,000 every month. Ideal Profile of Investors:Investors opting to invest through an SIP option should: -term investment horizon, be willing to invest regularly,

cannot invest enough amount at one go How can SIP scores It makes you disciplined in your savings. Every month you are forced to keep aside a fixed amount. This could either be debited directly from your account or you could give the mutual fund post-dated cheques. As you see above, it helps you make money over the long term. Since you get more units when the NAV drops and fewer when it rises, the cost averages out over time. So you tide over all the ups and downs of the market without any drastic losses. Also, a number of mutual funds do not charge an entry load if you opt for an SIP. This fee is a percentage of the amount you are investing. And if you do not exit (sell your units) within a year of buying the units, you do not have to pay an exit load (same as an entry load, except this is charged when you sell your units). If, however, you do sell your units within a year, you would be charged an exit load. So it pays to stay invested for the long-run. The best way to enter a mutual fund is via an SIP. But to get the benefit of an SIP, think of at least a three-year time frame when you won't touch your money. Of course you would lose money if your units lost value over time. What most SIP Mutual funds don't tell you is that they recover their fees as monthly charges by selling your units, so while you are buying more units when the market is down, more of your units are also being sold to fund the monthly charges of the Mutual fund. Also the Bid and Offer of the Mutual Fund is around 7% and this is the front load or expense you pay for buying the units each month. Also sometimes the Mutual fund will have annual fee charges. From the above write up we can say about SIP in bullets points as below: SIP means Systematic investment Plan It is one of the ways to invest in Mutual Funds Through SIP you can invest in Mutual Funds in small installments on a monthly basis The investment is done directly by debiting your bank account on a specified date and Providing you a credit for the units purchased from the amount

 You can start your SIP by filling up a simple SIP form and providing bank auto debit Mandate. Your SIP does not stop if you miss an installment The AMC does not charge you any money for missing an installment Your bank however, may charge you as per banks policies All SIPs are done in Open ended funds There is no lock in for your SIPs (except tax saving funds) You can withdraw any amount at any point of time without stopping your SIP Do's Ensure Sufficient balance in your account on every date of Auto debit Link your SIP with your financial goals and do it for long term Donts Don't panic with market fall. Continue your SIP in the bad times In case of a market rise, don't hurry to book your profit Keep your investment tenure in mind

Systematic Investment Plan (SIP) Calculator: Systematic Investing in a Mutual Fund is the answer to preventing the pitfalls of equity investment and still enjoying the high returns. This SIP Calculator will show you how small investments made at regular intervals can yield much better returns over a long period of time. This is software to calculate the return on investment in SIP. In this we have to fill the details about the following:1) Types of mutual funds. 2) Which scheme we are using. 3) Investment amount 4) SIP frequency 5) Date start and the end date.

The picture is showing the SIP calculator from moneycontrol.com

Mutual Funds in India Mutual Fund is an instrument of investing money. Nowadays, bank rates have fallen down and are generally below the inflation rate. Therefore, keeping large amounts of money in bank is not a wise option, as in real terms the value of money decreases over a period of time. One of the options is to invest the money in stock market. But a common investor is not informed and competent enough to understand the intricacies of stock market. This is where mutual funds come to the rescue. A mutual fund is a group of investors operating through a fund manager to purchase a diverse portfolio of stocks or bonds. Mutual funds are highly cost efficient and very easy to invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. Also, one doesn't have to figure out which stocks or bonds to buy. But the biggest advantage of mutual funds is diversification. Diversification means spreading out money across many different types of investments. When one investment is down another might be up. Diversification of investment holdings reduces the risk tremendously. On the basis of their structure and objective, mutual funds can be classified into following major types: Closed-end funds A closed-end mutual fund has a set number of shares issued to the public through an initial public offering. Open-end funds Open end funds are operated by a mutual fund house which raises money from shareholders and invests in a group of assets Large cap funds Large cap funds are those mutual funds, which seek capital appreciation by investing primarily in stocks of large blue chip companies Mid-cap funds Mid cap funds are those mutual funds, which invest in small / medium sized companies. As there is no standard definition classifying companies

Equity funds Equity mutual funds are also known as stock mutual funds. Equity mutual funds invest pooled amounts of money in the stocks of public companies. Balanced funds Balanced fund is also known as hybrid fund. It is a type of mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds Growth funds Growth funds are those mutual funds that aim to achieve capital appreciation by investing in growth stocks. No load funds Mutual funds can be classified into two types - Load mutual funds and No-Load mutual funds. Exchange traded funds Exchange Traded Funds (ETFs) represent a basket of securities that is traded on an exchange, similar to a stock. Hence, unlike conventional mutual funds Value funds Value funds are those mutual funds that tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation. Money market funds A money market fund is a mutual fund that invests solely in money market instruments. Money market instruments are forms of debt that mature in less than one year and are very liquid. International mutual funds International mutual funds are those funds that invest in non-domestic securities markets throughout the world. Regional mutual funds Regional mutual fund is a mutual fund that confines itself to investments in securities from a specified geographical area, usually, the fund's local region. Sector funds Sector mutual funds are those mutual funds that restrict their investments to a particular segment or sector of the economy.

Index funds An index fund is a mutual fund or exchange-traded fund) that aims to replicate the movements of an index of a specific financial market. Fund of funds A fund of funds (FoF) is an investment fund that holds a portfolio of other investment funds rather than investing directly in shares, bonds or other securities.

Schemes in mutual funds Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

By Structure o Open - Ended Schemes o Close - Ended Schemes o Interval Schemes By Investment Objective o Growth Schemes o Income Schemes o Balanced Schemes o Money Market Schemes Other Schemes o Tax Saving Schemes o Special Schemes Index Schemes Sector Specific Schemes

SOME OF THE TERMS USED IN MUTUAL FUNDS Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Sale Price:- It is the price you pay when you invest in a scheme and is also called "Offer Price". It may include a sales load. Repurchase Price: - It is the price at which a Mutual Funds repurchases its units and it may include a back-end load. This is also called Bid Price. Redemption Price: It is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load / Front End Load: It is a charge collected by a scheme when it sells the units. Also called, Front-end load. Schemes which do not charge a load at the time of entry are called No Load schemes. Repurchase / Back-end Load : It is a charge collected by a Mutual Funds when it buys back / Repurchases the units from the unit holders. Some of the important investment plans include: Growth Plan Dividend is not paid-out under a Growth Plan and the investor realizes only the capital appreciation on the investment (by an increase in NAV). A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realizes capital appreciation on the investment. This plan appeals to investors in the high- income bracket. Income Plan Dividends are distributed to the investors from time to time. But, the net asset value of the mutual fund scheme under an Income Plan is dependent on the dividend payout.

Dividend Re-investment Plan Generally mutual funds present the investor with an option of taking dividends or an alternative to re-invest the same. In Dividend Re-investment Plan the dividend credited on mutual funds is automatically re-invested on behalf of investor in buying additional units in open-ended funds. This increases the number of units possessed by investor. Insurance Plan Depending on your life expectancy, lifetime income, disability income, tax advantages, what fraction of income one can spend, various plans are available that provide insurance cover to investors. Systematic Investment Plan (SIP) Also called Automatic Investment Plan, SIP is designed for the investors to plan their savings through an ordered regular monthly savings program. In the investor is given the choice of setting up a fixed number of post-dated cheques in favor of the fund. The investor is allotted units on the date of the respective cheques at the applicable net asset value. The investor invests in a specified frequency of months in a specified scheme of the Mutual Fund for a constant sum of investment. Systematic Withdrawal Plan In contrast to the Systematic Investment Plan, the Systematic Withdrawal Plan (also called Automatic Withdrawal Plan) allows the investor with the facility to withdraw a pre-determined amount or units from his fund at a pre-determined interval. The investors units will be redeemed at the applicable net asset value as on that day. Systematic Withdrawal Plan A Systematic Withdrawal Plan (SWP) is a facility that allows an investor to withdraw money from an existing mutual fund at predetermined intervals. The money withdrawn through a systematic withdrawal plan can be reinvested in another fund or retained by the investor in cash.

When is a SWP generally used? Systematic withdrawal plans are used by investors to create a regular flow of income from their investments. Investors looking for income at periodical intervals for e.g. funding a travel plan during the childrens summer vacations, also set up their withdrawals in such a way that the cash is available when most required.

What makes SWP a wise strategy? Withdrawals (also referred to as redemption) attract no Tax Deducted at Source Please note that Capital Gains Tax will chargeable on the withdrawn amount. SWP can be set up to withdraw only the appreciation made on a particular investment. In this way your capital stays invested while you continue to enjoy the gains periodically.

SWP is available in two options: Fixed Withdrawal: Where you specify amounts you wish to withdraw from your investment on a monthly/quarterly basis. Appreciation Withdrawal: Where you can withdraw your appreciated amount on a monthly/quarterly basis. Post-dated warrants sent to investors are dated 1st of every month.

Why is SIP a Smart choice? Inculcate financial discipline Helps you make investment your first priority from it being your last priority.

Average out your cost of investment and hence reduce your risk Lets say you invested Rs 1000 every month. And lets say the scheme invested in is available at a rate of Rs 20 per unit. Then in month 1, you will be able to obtain 50 units. In month 2 if the unit value goes down to Rs 10 then you will be able to obtain 100 units.

Hence for Rs 2000 invested over 2 months the total value of your investment at the end of 2 months is Rs 1500. However if you had invested a straight sum of Rs 2000 in month 1 when the rate was Rs 20 per unit your net value at the end of month 2 will only be Rs 1000/-.

Hence an SIP helps you average out your cost and thereby reduce risk resulting in generating superior returns.

Helps in compounding your wealth Getting rich is simpler than you think, here's a simple formula to get rich:

Start Early + Invest Regularly = Create Wealth

Invest Regularly Systematic investing has a compounding effect on your investments. In the long

term, an investment as low as Rs 1000/- per month swells up into a huge corpus.

This can be best explained by the following graph. The graph shows the value of investment at various rates of return for Rs. 1000/- invested every month for 30 years.

The BSE Sensex has generated returns at 19.43%* CAGR from 1st January 1991 to 1st January 2008. Rs. 1000 invested every month since January 1991 would have led to a total investment of Rs. 3.6 Lakhs. This investment would have been worth Rs. 2.03 Cr in January 2008.

Did you know that Rs 1,000 invested every month would total to Rs 240,000 after 1 month? Yes and in the above example we have assumed ZERO growth rate. To understand the power of compounding further, lets just add a simple growth rate of 3%. Then Rs 1000 invested every month becomes Rs 327,660. At 20% the

amount will grow to Rs 24,76,191/-. Isnt that incredible?

Start Early Now that we know that the power of compounding can create magic for your investments, starting your investments early also has its own advantages. Starting early means that the power of compounding starts acting on your money earlier thereby generating higher returns.

Consider the following graph:

An individual who starts planning for his retirement at 25yrs of age by investing a modest Rs. 1000 / month collects upto Rs. 40 Lakhs on retirement whereas his investment over the period is just Rs. 4.2 Lakhs

On the other hand if the same individual delays his retirement planning by 5 yrs, his wealth upon retirement reduces significantly (approx Rs. 15 Lakhs.) Systematic investment plan according to HDFC is written and explain below:Systematic Investment Plan is an approach to investing within managed investments which involves investing a set of amount at regular intervals rather than investing a larger lump sum amount in one shot. By investing this way you are not attempting to capture the highs and lows of the market but rather the cost of your investment is averaged over a period of time. The essence of SIPs is that when the markets fall investors automatically acquire more units. Likewise they acquire lesser units when the market rises. This means that you buy less when the price is high whereas you buy more the price is low. Hence the average cost per unit drops down over a period of time. Consider the following example of two rational people who each invest the same amount of money into a managed fund over a period of time. Investor A decides to invest Rs. 10000 now. Investor B decides to invest by way of an SIP- RS. 1000 each month below table show the monthly investment. Investor A Units Investor B Units Month Unit Price (In Rs.) Purchased (In Rs.) Purchased 1 2 3 4 5 6 7 8 9 10000 0 0 0 0 0 0 0 0 1000 0 0 0 0 0 0 0 0 1000 1000 1000 1000 1000 1000 1000 1000 1000 100.0 105.3 114.3 115.6 118.3 125.0 117.6 107.5 95.2 10.0 9.5 8.8 8.7 8.5 8.0 8.5 9.3 10.5

10 Total Investment

0 Rs.10000

0 1000

1000 Rs. 10000 Rs. 11988

90.9 1089.8

11.0

Total Value Rs.11000

The table shows that Investor B is in a better position by investing through a Systematic Investment. It shows that at the end of the investment period of 10 months Investor A who made an Lump sump investment has 1000 units in his portfolio has a market value of Rs. 11000. Whereas, Investor B who made investments through an SIP has 1090 units in his portfolio which has a market value of Rs. 11988. Advantages of SIP The reason that mutual funds are so popular is that they offer the ability to easily invest in increasingly more complicated financial markets. A large part of the success of mutual funds is also the advantages they offer in terms of diversification, professional management and liquidity. Power of Compounding - The longer the period of your investment, the more wealth you accumulate because of the power of compounding. Thats why it makes sense to start investing early. Simply put, the incremental returns that you earned on your principal plus the accrued gains is compounding. Rupee Cost Averaging - Most investors want to buy stocks when the prices are low and sell them when the prices are high. But timing the market is time consuming and risky. A more successful investment strategy is to adopt this method called Rupee Cost Averaging. By investing in an SIP you end up buying more units when the price is low and fewer when the price is high.

This is a picture of HDFC online details about SIP

Why invest in SIPs right now? The current scenario in equity market is dominated by negative sentiment, which has led to fundamentals being ignored. This scenario has created volatility in the markets and uncertainty of future outlook. The prudent way to invest in this scenario is to benefit from the volatility and this can be done by investing through SIPs A monthly SIP helps in averaging out the cost of purchase and benefit from power of compounding. It also helps in creating wealth over a longer time period. The current investment scenario is still dominated by negative sentiment. This creates volatility in the markets due to confused minds of the investors. Such volatility makes it difficult to capture the market movements and most people end up losing money with the intention of timing the markets. Also investing a lump sum in one shot might lead you to miss out on market opportunities. The tool to beat such a scenario is investing through a Systematic Investment Plan. 7 good reason to invest through SIP:Systematic Investing in a Mutual Fund is the answer to preventing the pitfalls of equity investment and still enjoying the high returns. And it makes all the more sense today when the stock markets are booming 1. Its an experts field Lets leave it to them Management of the fund by the professionals or experts is one of the key advantages of investing through a mutual fund. They regularly carry out extensive research - on the company, the industry and the economy thus ensuring informed investment. Secondly, they regularly track the market. Thus for many of us who do not have the desired expertise and are too busy with our vocation to devote

sufficient time and effort to investing in equity, mutual funds offer an attractive alternative. 2. Putting eggs in different baskets.. Another advantage of investing through mutual funds is that even with small amounts we are able to enjoy the benefits of diversification. Huge amounts would be required for an individual to achieve the desired diversification, which would not be possible for many of us. Diversification reduces the overall impact on the returns from a portfolio, on account of a loss in a particular company/sector. 3. Its all transparent & well regulated. The Mutual Fund industry is well regulated both by SEBI and AMFI. They have, over the years, introduced regulations, which ensure smooth and transparent functioning of the mutual funds industry. This makes it safer and convenient for investors to invest through the mutual funds. 4. Market timing becomes irrelevant.. One of the biggest difficulties in equity investing is WHEN to invest, apart from the other big question WHERE to invest. While, investing in a mutual fund solves the issue of where to invest, SIP helps us to overcome the problem of when. SIP is a disciplined investing irrespective of the state of the market. It thus makes the market timing totally irrelevant. And today when the markets are high, it may not be prudent to commit large sums at one go. With the next 2-3 years looking good from Indian Economy point of view, one can expect handsome returns thru regular investing. 5. Does not strain our day-to-day finances Mutual Funds allow us to invest very small amounts (Rs 500 Rs 1000) in SIP, as against larger one-time investment required, if we were to buy directly from the market. This makes investing easier as it does not strain our monthly finances. It, therefore, becomes an ideal investment option for a small-time investor, who would otherwise not be able to enjoy the benefits of investing in the equity market. 6. Reduces the average cost . In SIP we are investing a fixed amount regularly. Therefore, we end up buying more number of units when the markets are down and NAV is low and less number of units when the markets are up and the NAV is high. This is called rupee-cost averaging. Generally, we would stay away from buying when the markets are down. We generally tend to invest when the markets are rising. SIP works as a good discipline as it forces us to buy even when the markets are low, which actually is the best time to buy. 7. Helps to fulfill our dreams The investments we make are ultimately for some objectives such as to buy a house, childrens education, marriage etc. And many of them require a huge onetime investment. As it would usually not be possible raise such large amounts at

short notice, we need to build the corpus over a longer period of time, through small but regular investments. This is what SIP is all about. Small investments, over a period of time, result in large wealth and help fulfill our dreams & aspirations. Please understand that its not a financial instrument, but a way of investing in mutual funds , some people confuse SIP with PPF ,NSC , and mutual funds , they think they can invest in "SIP" , its just a mode of investment. When to invest in mutual funds through SIP? Investment through SIP must be done only when markets are uncertain or very volatile, when you dont know which side they are headed to. SIP will be beneficial only if markets really are volatile or going down after you invested. If it happens that markets turns bullish and starts going up, in that case SIP will not be beneficial and will give less return compared to lump sum investment in start. SIP is a simple concept and hence very powerful, lets sees some reasons why its worth investing through SIP. Lets take an example of "VISHAL who invests 1,000 per month through SIP starting Jan 2, 2007. How SIP helps in this case? See the result on the next page :

ADVANTAGES OF SIP:1. Price averaging: SIP allows you to average the price over long period so that the impact of changing prices of mutual fund is minimized. You can buy more units when the prices drop and buy less when the prices move up. The advantage is that you do not have to worry about price movement. 2. Discipline: SIP instills in you a sense of discipline towards investment and savings. 3. Low base requirement: You can start SIP with a much lower investment. Many banks and financial institutions allow investment via SIP as low as Rs 500 a month. 4. More convenient for average person on wallet: Its easier for a person to invest in small amount every month, rather than a lump sum amount. Investing through SIP is lighter on wallet. Its easy to pay Rs 5,000 per month for 1 year, rather than investing 60,000 at a same time. 5. It brings your average cost price for unit down (in volatile market) :The biggest advantage of SIP is this part , There is a concept of rupee-cost averaging, In SIP you buy less when market and NAV are UP and you get more units when they are low. When this happen, the average cost of per unit is lower. 6. Makes you a disciplined Investor: The other advantage of SIP is that it makes you a disciplined investor. Once you start SIP, each month you have to contribute certain money in mutual fund and that habit is cultivated. 7. Rupee cost averaging: SIPs are based on the concept of Rupee cost averaging. It helps investors to limit their purchases in rising markets and expand them in falling markets. It helps to tap the tops and bottoms of a

stock market thus averaging out the cost per unit of a mutual fund scheme (see example given above). 8. Disciplined Saving: SIPs play a vital role in helping us improve our investment habits. It reminds investors of their commitment to contribute a specified amount to the pool at regular intervals. This makes investors more disciplined in their approach towards investment which finally helps them in saving more money (as this monthly investment could otherwise be used for spending on unnecessary items). 9. Compounding Benefits: Because of the power of compounding, investors who start early get the maximum advantage. SIPs have provided maximum returns when investments are made for a long period of time (i.e. for 3 to 5 years) and investors who follow this strategy gain from the compounding effect of returns on their investments. 10. Risk-free from Timing: Many investors try to time the market and fail most of the time for the simple reason that it is virtually not possible for anybody to time the market. SIPs enable investors to capitalize on upside and downside movements in the market and be care-free from the tedious task of timing the market. Investors opting for SIPs don't need to worry about the daily movements in the market. Benefits of SIP 1. SIP offers you tax benefits which could come in handy if have to pay income tax. 2. Regular Investment makes you disciplined in your savings and also leads to wealth accumulation. 3. SIP comes with a locking period, so even if you wish to spend you cannot as the funds are locked and cannot be taken out. 4. In SIP, invest as low as 500 or 1000 rupees. There is no need to worry if you do not earn a lot of money as you can still be a market investor with as low as 500 a month and even that would come up to be quite a good sum after a few years. 5. In SIP, you invest in mutual funds where your investments are managed by market experts and professionals who have good knowledge in this field, so you have a chance to do much better than that of investing yourself alone. 6. In SIP, you will be purchasing units at all phases of the market, high or low, depending on that you get the units share and so you dont need to worry about market going up or down. But just have to wait for the right time to take out your money after the scheme is over and no more deposits are being done. Thus your investments get averages out at the end and the loss is very limited which isnt the case when you invest all at once.

7. Convenience and affordability because of an easy payment method. 8. Helps X to develop the habit of disciplined investing as he/she is compelled to fulfill his/her commitment of making a fixed payment every month. 9. Rupee cost average benefit - By investing through the SIP route, 'X' receives 194.925 units at an average cost of Rs. 61.5621. However, had 'X' invested the whole of Rs. 12000 at one go, he would have received a different number of units. Suppose 'X' had invested Rs. 12000 on: 1st Jan 2006 - He would have received 259.24 units 1st Jul 2006 - He would have received 193.11 units 1st Dec 2006 - He would have received 133.45 units Since, it is not so simple for anybody to perfectly time the market, it makes a more sensible approach to invest through SIP option (for long-term, say 3 to 5 years). It actually makes the volatility in the stock markets work for investors. This example helps us to understand how SIP allows 'X' to take benefit of all the highs and lows of the market during this twelve months time period. 10. Flexibility to redeem units at any time or making a change in the monthly investment amount.

Disadvantage of Systematic investment plan:1. No downside Protection - Investors should remember that despite of all the advantages that SIPs have, they are subject to market risks and do not protect investors from making a loss or ensure them profits in falling markets. 2. Portfolio risk remains - SIPs are also subject to security risk. Mutual fund schemes investing in portfolios that turns out to generate negative returns are bound to make investors incur a loss even if the investment is made through SIPs. 3. It will not work in bullish markets or when market goes up over time: When market goes up and keeps growing over time , the units bought every time will be at high price then the previous one, which will ultimately bring the average cost up , compared to the lump sum investment at the start. 4. In case of tax saving fund, the lock in period gets extended for every investment: Tax saver mutual funds lock your money for 3 yrs, when you invest through SIP, each of your investment is locked separately for 3 yrs from the date of investment. So if you pay your first installment on Jan 2007 , it will locked till Jan 1 2010 , then the installment paid on Feb 1 , 2007 will

be locked till Feb 1 , 2010 and like this each installment will be locked with the gap of 1 month. 5. SIP returns are lower in consistently rising markets. 6. Limited options of dates: For a SIP in Mutual Fund you need to decide a date in advance when you like to do your SIP and give an ECS mandate for the same. Most of the MFs have limited option (mainly 1st, 5th, 7th, 10th, 15th, etc). So you tend to invest in multiple mutual funds on the same date. You want to lessen your risk by spreading your SIP in the entire month by choosing different dates for different funds. 7. Fixed Amount: There are times when you feel that markets are undervalued and you want to invest more but then in SIP only a predetermined fixed sum gets invested. Same is the case when you want to invest less, you cant do it. 8. Stopping intermediate payment: It may so happen that you got an emergency or have a major expense this month and so you dont want to invest. But with SIP this is not possible; if theres money in your bank it will get debited and invested. The only way out is to cancel the SIP which can be a nightmare if you have a lot of SIPs and also when you want to start again you need to go through all the formalities to start the SIP. Also for cancellation you need to inform 2 weeks in advance and even then you may not be sure that SIP would not be debited. 9. Lot of delay between actual application & start/stop of SIP: I feel this is very irritating and you may miss one monthly installment; MF houses need at least a month to start a SIP and around two weeks to stop your SIP. I think its the time they should try and come up with quicker processing of SIPs. 10.Does not suit people with unpredictable cash flows: Think of someone who doesnt have a predictable cash flow like a self-employed professional. He wont be able to do SIP as he would be unable to commit a fixed sum every month.