Systematic Investment Plan
A disciplined approach to investing
You’d be amazed what you could achieve by setting aside a small sum of money regularly. small sums(even of a few hundred rupees) saved in wise investments over long periods of time can result in a substantial sum of money, thanks to the Power of Compounding. Compounding is when your investments generate earnings on reinvested earnings. This ensures that every single rupee you invest constantly works hard for you.
INVESTING USING THE SYSTEMATIC INVESTMENT PLAN HAS MANY BENEFITS:
- it disciplines you to save regularly rather than arbitarily.
- You can save in small amounts
- Your investments have a chance to grow because of compounding benefits.
- It helps reduce the risk of timing the markets.
- Most importantly, it brings down the average cost of your investments(a Rupee saved is a Rupee earned)
NAV Movement
| Month | Amount Invested in Rs. | Rising Market | Units | Falling Market | Units | Fluctuating Market | Units |
| 1. | 1000 | 12 | 83.333 | 12 | 083.333 | 12 | 83.33333 |
| 2. | 1000 | 14 | 71.492 | 10 | 100.000 | 15 | 66.66667 |
| 3. | 1000 | 15 | 66.667 | 8 | 125.000 | 9 | 111.1111 |
| 4. | 1000 | 18 | 55.556 | 6 | 166.670 | 12 | 83.33333 |
| Total | 4000 | 59 | 276.984 | 36 | 475.000 | 48 | 344.444 |
| Rising Market | Falling Market | Fluctuating Market | ||||
| Average Purchase Price | 14.75 | 9 | 12 | |||
| Per Unit Per month | (59/4) | (36/4) | (48/4) | |||
| Average cost per unit | 14.44 | 8.42 | 11.61 | |||
| (4000/276.984) | ||||||
As can be seen from the above examples, you automatically gain without having to monitor the market or attempting to predict the market for purchasing the units.
A Systematic Investment plan allows a minimum of Rs 500 to be invested every month or quarter for a minimum of 6 months.By investing regular sums of money, it allows you to make the volitilities of the market to work in your favour.Since the amount invested every month is a constant, the investor ends up buying more units when the price is low and fewer units when the price is high. Therefore, the average unit cost will always be lower than the average purchase price per unit irrespective of the market rising, falling or fluctuating.
This concept is called : Rupee Cost Averaging.
Where should you invest?
If you prefer moderate returns with limited risk then we recommend the Balanced Fund or if you are looking for long term capital appreciation, we recommend the Growth Plan.
The following table gives the details an example.
| Scheme | Initial
Investment(Rs.) |
Minimum Post dated Cheques | |
| Monthly SIP | Quarterly SIP | ||
|---|---|---|---|
| Balanced Fund | 3,000 | 1,000 | 1,500 |
| Growth Fund | 3,000 | 500 | 1,500 |
How do you get started?
It’s Simple:
- Ask for the application form and fill the same.
- Towards the initial investment, please write a cheque (minimum amount) plus write our 4 Post dated cheques(incase of quarterly) or 12 post dated cheques (incase of monthly).
The benefit of Value Cost Averaging (VCA) over Rupee Cost Averaging(SIP).
The basic tenant of investing is buying low and selling high. However, this principal, is often never put to use, because fear, greed are stronger than long term investing discipline.
What is even sadder is the public, normally buys at highs and sells at lows, which grossly undermines returns and the investor, ends up loosing money and not being happy with the investment decision or the financial planner.
The basic tenant of investing systematically through a disciplined and long term savings approach would create wealth in abundance for the investor.
Value Cost Averaging (VCA), is an investment technique similar to Systematic Investing (SIP), where investments are made systematically over a period of time, but the quantum of investment in VCA changes depending on market fluctuation.
This ensures your portfolio value rises by a specified amount at every installment period, regardless of market conditions.
Sounds interesting..? Read on.
VCA enables financial planners reach the desired goal amount in a more predictable manner.
VCA fixes a target amount each month, and ensures this target amount is maintained every month, irrespective of the market price. Therefore, the investor, buys or sells, only those units that are required to maintain the predestined portfolio worth at each revaluation point, which is typically every month.
Therefore, the simple principal is, in falling markets, one buys more units and in rising markets, one buys fewer units or may even require to sell some units to maintain the target portfolio amount.
In Systematic Investment Plan(SIP) a fixed amount is invested every month, irrespective of the predetermined portfolio value. This is also called Rupee Cost Averaging.
Therefore, the distinctive feature of VCA over SIP or rupee cost averaging is as a rule, VCA may also result in selling some units, to maintain the desired portfolio target, which SIP does not do.