Tuesday, March 30, 2010

>SYSTEMATIC INVESTMENT PLAN: A disciplined investment approach

A systematic investment plan (SIP) is a disciplined way of investing your funds. It works on the principle of regular investing. SIPs allow you to invest a prefixed amount for a prefixed interval in a mutual fund scheme of your choice. On the defined date, the amount indicated by you will be
automatically debited from your bank account and invested in the scheme selected by you. Hence, after you have set an SIP you are not required to track the investment dates

Benefit of SIP
• Avoid timing the market: By investing a small amount regularly into the schemes you can avoid the common error of investing larger sums in bull markets (when the markets are at a high) and smaller sums in bear markets (when the markets are at a low)

• Rupee cost averaging: An SIP allows you to invest a pre-specified amount in a scheme at periodic intervals (e.g. one month, three months, etc). Therefore, whenever the market moves down and the net asset value (NAV) of the scheme is lower, you end up buying more units of the scheme. If the market moves up, the NAV of the scheme rises and you will get less units of the
scheme. Hence, the average cost of purchase works out lesser

• Not just savings but investing too: Usually we tend to save some amount but fail to invest the same. An SIP not only imparts savings it invests your capital and frees you from answering the
question of where to invest each time you save

Why SIP in equity funds?
Investments into equities over a longer period have always delivered higher returns. By doing an SIP in an equity fund, you have an opportunity to increase the growth rate of the accumulated capital. A 10-year SIP in an equity fund after accounting for the fluctuations in the market can earn capital appreciation far better than any other investment option available
for retail investors.

To read the full report: SIP