Wikipedia A Systematic Investment Plan (SIP) 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 monthly or quarterly. [edit]How 100 and the frequency of investment is usually

an SIP works

An SIP allows you to take part in the stock market without trying to second-guess its movements. It is also known as Dollar Cost Averaging. An SIP means you commit yourself to investing a fixed amount every month. Let's say it is 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[see Dollar cost averaging].) { 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

1000

Jan 1 10

100

Feb 1 10.5 95.23

Mar 1 11

90.90

Apr 1 9.5

105.26

May 1 9

111.11

Jun 1 11.5 86.95

Within six months, you would have 5,89.45 units by investing just

1,000 every month.

Over the long run, you may make money or lose Let's say you invested in a Mutual Fund unit during the dotcom and tech boom. Say you began with Investment period Mar 2000 Mar 2005 1,000 and kept investing 1,000 every month. This would be the result:

Monthly investment 1,000

Total amount invested 61,000

Value of investment of Mar 7, 2005 1,09,315

Return on investment 23.87%

Had you bought the units on March 13, 2000 at 10.88 per unit (that was the NAV then), you would have lost because the NAV was just 7.04 on March 7, 2005. But because you spaced out your investment, you won. Conversely if the market had trended higher from the day you decided to start investing, you would lose out on an opportunity. This would happen as your subsequent purchases will get you less number of units for the same amount. Systematic Investment Plan can help you to be disciplined (if you need discipline) but not solve your market timing issues. The Investment advisor or the Mutual Fund has a vested interest in pitching this idea to you as once you invest all your future investment would also accrue to them effortlessly. [edit]How

an 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. In spite of the above drawbacks the retail investors' benefit in the long term horizon of 58 years is enormous. Only make sure that you can switch your funds from stock market to money market at short notice when the markets are really in a correction phase to safeguard the profits which you have made when the market was in a booming phase. This is easier said than done. Wikipedia

What is Systematic Investment Plan or SIP?

SIP works on the principle of regular investments. It is like your recurring deposit where you put in a small amount every month. It allows you to invest in a MF by making smaller periodic investments (monthly or quarterly) in place of a heavy one-time investment i.e. SIP allows you to pay 10 periodic investments of Rs 500 each in place of a one-time investment of Rs 5,000 in an MF. Thus, you can invest in an MF without altering your other financial liabilities. It is imperative to understand the concept of rupee cost averaging and the power of compounding to better appreciate the working of SIPs. SIP has brought mutual funds within the reach of an average person as it enables even those with tight budgets to invest Rs 500 or Rs 1,000 on a regular basis in place of making a heavy, one-time investment. While making small investments through SIP may not seem appealing at first, it enables investors to get into the habit of saving. And over the years, it can really add up and give you handsome returns. A monthly SIP of Rs 1000 at the rate of 9% would grow to Rs 6.69 lakh in 10 years, Rs 17.83 lakh in 30 years and Rs 44.20 lakh in 40 years. Even for the cash-rich, SIPs reduces the chance of investing at the wrong time and losing their sleep over a wrong investment decision. However, the true benefit of an SIP is derived by investing at lower levels. Other benefits include: 1. Discipline

The cardinal rule of building your corpus is to stay focused, invest regularly and maintain discipline in your investing pattern. A few hundreds set aside every month will not affect your monthly disposable income. You will also find it easier to part with a few hundreds every month, rather than set aside a large sum for investing in one shot. 2. Power of compounding Investment gurus always recommend that one must start investing early in life. One of the main reasons for doing that is the benefit of compounding. Let's explain this with an example. Person A started investing Rs 10,000 per year at the age of 30. Person B started investing the same amount every year at the age of 35. When they attained the age of 60 respectively, A had built a corpus of Rs 12.23 lakh while person B's corpus was only Rs 7.89 lakh. For this example, a rate of return of 8% compounded has been assumed. So the difference of Rs 50,000 in amount invested made a difference of more than Rs 4 lakh to their end-corpus. That difference is due to the effect of compounding. The longer the (compounding) period, the higher the returns. Now, instead of investing Rs 10,000 each year, suppose A invested Rs 50,000 after every five years, starting at the age of 35. The total amount invested, thus remains the same -- Rs 3 lakh. However, when he is 60, his corpus will be Rs 10.43 lakh. Again, he loses the advantage of compounding in the early years. 3. Rupee cost averaging This is especially true for investments in equities. When you invest the same amount in a fund at regular intervals over time, you buy more units when the price is lower. Thus, you would reduce your average cost per share (or per unit) over time. This strategy is called 'rupee cost averaging'. With a sensible and long-term investment approach, rupee cost averaging can smoothen out the market's ups and downs and reduce the risks of investing in volatile markets. People who invest through SIPs capture the lows as well as the highs of the market. In an SIP, your average cost of investing comes down since you will go through all phases of the market, bull or bear. 4. Convenience This is a very convenient way of investing. You have to just submit cheques along with the filled up enrolment form. The mutual fund will deposit the cheques on the requested date and credit the units to one's account and will send the confirmation for the same. 5. Other advantages

 There are no entry or exit loads on SIP investments. Capital gains, wherever applicable, are taxed on a first-in, first-out basis. Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.

agic of Mutual Fund Systematic Investment Plan (SIP) Systematic Investment Plan in Mutual Fund is commonly named SIP is really getting popular in India. Systematic Investment Plan is such a beautiful tool, which if used properly can help you to achieve all your financial goals. Some time back we wrote Do you really understand Systematic Investment Plan which is one of the most popular article of TFL, but readers requested that they want to read more about basics of Mutual Fund SIP. So here it is..
This Article will cover
Magic of SIP What is Systematic Investment Plan (SIP) Advantage & Benefit of Systematic Investment Plan Best Systematic Investment Plan in India Systematic Investment Plan Presentation with Facts & Figures SIP Presentation with Examples & Analogies (I like this one Systematic Investment Plan (SIP) Calculator Must Use )

What is Systematic Investment Plan?

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 one time 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.

Benefits of Systematic Investment Plan

1) What is your equation to investments: EARN->SPEND->SAVE OR EARN->SAVE->SPEND

The first is a wrong way of investing. You should be saving in a disciplined manner and SIP enables you to follow the second, which is the correct equation of investments. 2) Power of compounding: SIP make sure that you are not only benefited on your investment but you also get returns over the interest which in overall will result generating greater returns. 3) Easy, Flexibility and Liquidity: SIP is easy to start, manage and stop. It gives you flexibility to choose a desired scheme or to with draw in parts. And with conditions you have the money for contingency and emergency use. 4) You can also do SIP in ELSS (Equity Linked Saving Scheme) to save tax under section 80 C. To check complete list of benefits you must read this article Benefits of Investing Systematically.

Best Systematic Investment Plans in India

Mutual Fund 3 5 10 12 YearsInvestment YearsInvestment YearsInvestment YearsInvestment 36000 60000 120000 144000 % Amount % Amount % Amount % Amount

Scheme Name

Birla Sunlife Equity Fund DSP BR Equity Fund

26

51990

17

92033

29

570925

27

847695

30

55142

22

103852

32

656368

28

890730

Franklin India 28 Blue Chip Fund HDFC Equity Fund HDFC Top 200 Fund 39

54785

20

98935

29

549491

27

860441

61979

26

112626

34

721916

32

1142897

34

57909

24

109045

33

706670

ICICI Prudential 25 Growth Fund Reliance Growth 29 Fund Reliance Vision 25 Fund SBIMagnum Global Fund Sundaram Growth Fund 29

51186

16

90158

25

437115

22

616589

54014

21

100716

38

901404

35

1407815

51789

17

91941

33

677154

31

1078457

54249

16

88337

31

607379

26

793162

24

50576

15

88069

25

458342

22

617858

Tata Pure Equity 27 Fund

52625

19

95385

29

554004

25

727228

*Calculations are done on 1st day of 2011 Monthly Investment of Rs 1000 I will again say Best comes after postmortem report you should see them as Top Systematic Investment Plans in Last 10 Years or just Systematic Investment PlanComparison. Calculations are done on Rs 1000 per month investment to keep things simple. If you would like to calculate for Rs

5000 or Rs 10000 you can multiply the amount by 5 or 10.