I have had great experience with Innov-Wealth, who meticulously made a financial plan aiding me in my journey towards financial independence. I would further like to commend them for their use of their platform and overall processes.
We all have different aspirations and life goals like buying a house or a car, taking an international vacation or having a destination wedding, relaxed retired life etc.
We can make it happen for you with sound financial planning & your commitment.
One of the best options is to start investing in mutual funds through SIP (Systematic Investment Plan).
Definition & Concept
A Systematic Investment Plan (SIP) is a mode of investment for mutual funds in which investors make regular, automated investments periodically.
SIPs, are the simplest and the most efficient way to achieve your financial goals over the long term. With our financial planning tool, we help you determine the target amount for each goal and the required amount you’d need to invest at periodic intervals in a mutual fund scheme recommended by our planners for you.
We help you set up a SIP with a mutual fund and automate your contributions for a pre-defined period. You can very well choose frequency of investing weekly, monthly, quarterly, semi-annually and so on.
Any contributions you make towards your SIP gets invested in the selected mutual fund scheme.
Once everything is set up, money will be debited from your registered bank account. It will be debited each month at an interval decided by you based on the selected day or date while setting up the SIP. This is an automated process. The funds will keep getting debited from your bank accordingly.
After the money is debited, you’ll receive acknowledgment which also includes the number of units you’ve been allotted based on the NAV (net asset value). The number of units allotted for each contribution may differ because the NAV changes every day.
Benefits of SIPs
- Cost Averaging
- It is one of the most prominent benefits of SIPs as it removes the need to time the market and allows the investor to buy at every market level over the SIP period and as per the selected frequency.
- Research and Data has proved that it is almost impossible to time the equity markets. Most investors end up losing money in the process.
- SIPs bring in the disciplined approach by investing a fixed amount at predetermined intervals, regardless of the market’s position. When the markets are relatively trending lower, you’re allotted a more units for the amount you invest, on the flip side, you’re allotted less units when the markets are rising.
- Over the long term, this reduces your average cost per allotted unit. For instance, say you’ve decided to invest ₹10,000 via SIP each month for next 5 months. Here’s how rupee-cost averaging will work in your favor for this.
Asset Classes 1-year Returns(%)* NAV Units [Contribution/NAV] NAV Units with Lumpsum Jan 10,000 100 100.00 100 500 Feb 10,000 97 103.09 – – Mar 10,000 95 105.26 – – Apr 10,000 101 99.01 – – May 10,000 99 101.01 – – Total 50,000 492 508.38 100 500 - Your average NAV cost per unit comes to 98.4 [492 ÷ 5], thanks to rupee-cost averaging. On the contrary for a lumpsum of ₹50,000 in January, your NAV cost per unit would have been ₹100. You’d also have been able to purchase only 500 units (8.38 less units, i.e., 50,000 ÷ 100 = 500 units) if you had opted for a lumpsum purchase.
- Professional Management
- Mutual funds are regulated by Securities & Exchange Board of India (SEBI) and are managed by Fund Managers who are experts with experience and track record as portfolio managers. They are also aided by team of research analysts who monitor the economy & markets to decide the right investment strategy.
- As an investor, you stand to benefit from the fund manager’s expertise. This is extremely important if you don’t have the knowledge & expertise of the debt or equity markets.
- SIPs thus also make use of the investment expertise of a fund manager who is responsible and accountable for managing the fund corpus to optimize the returns for the investors.
- Financial Discipline
- Routine Approach: Earn – Spend = Invest
- SIPs help inculcate much required discipline of saving and investing a fixed amount each month. This automatically cuts down on the disposable money available with you for any unwarranted impulsive expenses.
- The Rule Of 15*15*15
- The 15*15*15 rule indicates that one can become a “Crore-pati” or create a corpus of Rs 1 Crore by investing only Rs 15,000 a month for a duration of 15 years in a fund that offers 15% returns per annum. It is purely an effect of compounding. To understand 15*15*15 rule, let’s first understand compounding.
- The term ‘Compounding’ is extensively used in mutual funds. Compounding is a phenomenon which makes small amounts invested on a regular basis grow to a significant sum over time.
- This is possible as the interest earned in the previous compounding period will, in turn, earn interest in the next compounding period. Therefore, compounding is the backbone of mutual fund investments and can take people from rags to riches over time. One can take maximum advantage of compounding by starting to invest in mutual funds at the earliest.
- Have a look at this interesting table below:
Parameter Mr Ram Mr Sham Age when entered 20 years 30 years Age when exited 60 years 60 years Investment duration 10 years 30 years Holding period 40 years 30 years Amount invested Rs. 2,000/ month Rs. 2,000/ month Total amount invested Rs. 2,40,000 Rs. 7,20,000 Returns earned 10%/ year 10%/ year Corpus accumulated at the time of redemption Rs. 81,27,183 Rs. 45,20,796 Growth 33.9 times 6.3 times
Types of SIP
- Fixed SIP: Fixed SIPs are the plain-vanilla version of SIPs. You choose an amount, a date till which you wish to contribute, and the rest of the process is automated.
- Top-up SIP: Top-up SIPs are great for investors who want to increase their SIP contributions periodically. Assuming your income increases by 10% each year, you could choose to increase your monthly SIP amount in equal or lesser or higher proportion.
