SIP. Systematic Investment Plan

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Neal Stanley
5 years ago
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1 SIP Systematic Investment Plan

2 What is the rule for sound physical health?

3 Regular Exercise, with Discipline - over a Long period of time

4 Thats true for Financial Health as well Regular Disciplined Long Term

5 Here s a story...about 2 people...in their 30s having decent income & 2 kids. Mr. Safe Mr. Smart

6 They had the same goals Kids Education Kids Marriage Big House Retirement

7 Let s analyse the cost of their dreams after 20 years assuming p.a. TODAY S COST AFTER 20 YEARS TODAY S COST AFTER 20 YEARS TODAY S COST AFTER 20 YEARS 5 Lakhs 19 Lakhs 10 Lakhs 39 Lakhs 30 Lakhs 1.2 Crore Marriage Higher Education House

8 The Savings & Expense mismatch over time Rs 20,000 Rs 77, 394 Erode Value of Savings image to be inverted Growing Expenses Todays Monthly Expense Monthly Expense after 20 years Inflation is p.a. in all the above calculations. The graph is only to illustrate the effect of inflation over time

9 Thanks to the Inflation Bug

10 Lets see how Mr. Safe & Mr. Smart plan to realise their dreams. Mr. Safe Mr. Smart

11 Mr. Safe believes only in FDs and other traditional savings instruments

12 But is it the smartest way to save for the long term?

13 Return on Asset Classes (1st Feb 2003 to 31st Jan 2017) 20.00% 15.00% 16.51% Knows that Equity has better returns potential in the long run 11.53% 10.00% 7.38% 5.00% 0.00% Equity Gold FD Source: Bloomberg. Past Performance may or may not be sustained in future. There is no assured return or gurantee from anyone that the same trend will continue. The above example is only for illustrative purpose and equity mutual fund schemes may not mirror the returns of any of the classes mentioned here. Gold returns are in INR.FD rate taken as average of SBI 1 year TD for the given period.

14 Mr. Safe is scared of Risk of loss Risk of Market Volatility Risk of Timing the Market correctly

15 SIP is a recurring deposit in mutual funds SIP the smart way SIP = Systematic Investment Plan SIP is a simple way of investing a fixed amount regularly with disclipline and without timing the market

16 Mr. Smart believes in Power of Compounding Rs monthly assumed growth Rs.66 Lakhs Mr. Smart Rs.13 Lakhs 10 years SIP 20 years SIP The above illustration is only to explain the concept of compunding & should not be construed as expectedreturn or an investment advice

17 But what about risk of market volatility?

18 Rupee Cost Averaging - Take the guesswork out of timing the market Month Monthly investment in Rs. Cost per unit Rs. No. of units bought Lump sum investment in Rs. No. of units bought 1 5, ,000 1, , Average Cost per unit - Rs , , Total Units 20,000 1,757 Average Cost per unit - Rs Just by investing a little every month, you average out the market highs & lows The above illustration is hypothetical & only to explain the concept of Rupee Cost Averaging & should not be constructed as expected return or an investment advice

19 What about risk of market timing?

20 Timing your SIP vs Regular SIP Timing Rs. 60,000 once every year for 20 years in SENSEX (Total of Rs. 12 lakhs) Rs lakhs Monthly SIP of Rs. 5,000 for 20 years (Total of Rs. 12 lakhs) Rs lakhs Rs lakhs Rs lakhs Peak Bottom 1st of the month 20th of the month Timing the market = very low probability but high efforts Monthly SIP = Practical approach & aligned with your financial plan Figures as of 31 - Dec : Source MFI Explorer ICRA

21 When they say time is money...it must be SIP Mr. Smart

22 Convenience Automated process Discipline fixed amount every month Why SIP? Rupee Cost Averaging More units when price is low & vice versa. Therefore timing the market is not required Power of Compounding Start early save more

23 Smart SIP Simple SIP SIP Strategies Target SIP Growing SIP

24 SIP Strategies Simple SIP

25 Simple SIP Fixed amount every month for the entire tenure. Example Rs. 20,000 p.m. SIP for 20 years Rs Rs Rs Rs Rs Year 1 Year 20

26 SIP Strategies Smart SIP

27 Fixed amount every month + higher amount when markets are cheap Rs Rs Rs Rs Rs. 4000

28 SIP Strategies Growing SIP

29 Age Grows Income Grows So Should your SIP Amount Rs Rs Rs Rs Year 20 Year 1

30 SIP Strategies Target SIP

31 Lets Assume you want to invest Rs. p.a. for 7 years i.e. you have a target of Rs. 10 lakhs at the end of the period Your monthly instalment = - Closing fund value Opening portfolio Date Opening Fund Value Monthly installment Closing Fund Value 01-Jan-15 Rs. 0 Rs. 7,700 Rs. 7, Feb-15 Rs. 7,000 Rs. 8,400 Rs. 15, Mar-15 Rs. 17,000 Rs. 6,100 Rs. 23, Apr-15 Rs. 22,000 Rs. 8,800 Rs. 30, May-15 Rs. 32,000 Rs. 6,500 Rs. 38,500 You basically bridge the gap between your target value and the actual value

32 But how can one plan & execute such SIP strategies? That s where your Financial Advisor comes into the picture

33 Identify your goals Start early & stay longer to enjoy the power of compounding Ask your financial advisor for the right amount of SIP for your goals Start an SIP today and give your story a happy ending! So, what s stopping you from being smart?

34 SIP Systematic Investment Plan Connect with us on Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Copyright Kotak Mahindra Asset Management Company. All rights reserved.

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