EMI = GOOD EMI Instalment Investment = SIP or Systematic Investment Plan offered by Mutual Funds is like a GOOD EMI
SYSTEMATIC INVESTMENT PLANS (SIPs) MADE SIMPLE WHAT are SIPs? WHY SIPs? WHERE to invest via SIPs? WHEN WHAT to start a SIP? not to do in SIPs
WHAT are SIPs? Ÿ SIPs are a REGULAR AND DISCIPLINED investing in mutual funds way of Ÿ INVESTING PROCESS similar to a Bank Recurring Deposit - Regular investment in one or multiple schemes Ÿ SIPs or Systematic Investment Plans are one of the BEST WAYS TO INVEST IN A MUTUAL FUND
WHY SIPs? ŸCHEAPER ON THE WALLET - Can be as low as R 500 per SIP per month ŸREGULAR AND DISCIPLINED INVESTMENT Ÿ Potential To CREATE WEALTH OVER LONG RUN ŸMAKE MARKET TIMING IRRELEVANT - Ensures that one invests at all points of time (high as well as low points of the market) - Benefits from Rupee Cost Averaging Ÿ Provide BENEFITS OF COMPOUNDING Let us look at some of the above aspects in detail..
WHY SIPs? CREATE WEALTH OVER LONG RUN
Create Wealth Over The Long Run (Illustration) SIP of R1000 per month growing @ 10%, 12% & 14% p.a. ^ * Period Principal R lac Final Value R lac @ 10% p.a. Final Value R lac @ 12% p.a. Final Value R lac @ 14% p.a. 10 years 1.20 2.07 2.32 2.62 15 years 1.80 4.18 5.05 6.13 20 years 2.40 7.66 9.99 13.16 25 years 3.00 9.57 13.98 27.27 A small difference of even 2% in returns can change the final amount drastically * For Illustration purposes only. These are assumed returns and actual returns may vary. Also, returns may vary with the type of underlying asset class. ^ Systematic Investment Plan at the beginning of the month.
RUPEE COST AVERAGING
Rupee Cost Averaging Receive more units when NAV is lower, vice versa when NAV is higher Investment (A) NAV (B) No. of Units (A / B) Remarks R 10000 20 500 Higher NAV ~ Less Units R 10000 16 625 Lower NAV ~ More Units Average Cost per unit 17.78 The cost is thus averaged out as NAV falls Longer the SIP period, better the impact of rupee cost averaging Longer SIP period may also help to lower volatility of returns
Rupee Cost Averaging (Illustration) SENSEX VALUE 35000 30000 25000 20000 15000 10000 How cost per unit has dropped over long investment horizon Starting Value 3,803 S&P BSE Sensex Sensex rose from 3,803 on Oct 31, 1997 to 33,213 on Oct 31, 2017 Average cost of a unit over the 20-year period was only Rs.7,456 BUT Ending Value 33,213 5000 Average Value 7,456 0 31-Oct-97 31-Oct-98 31-Oct-99 31-Oct-00 31-Oct-01 31-Oct-02 31-Oct-03 31-Oct-04 31-Oct-05 31-Oct-06 31-Oct-07 31-Oct-08 31-Oct-09 31-Oct-10 31-Oct-11 31-Oct-12 31-Oct-13 31-Oct-14 31-Oct-15 31-Oct-16 31-Oct-17 Past performance may or may not be sustained in future. For a 20-year SIP in S&P BSE Sensex ending on Oct 31, 2017. Investment at the start of the month. Source-CRISIL Mutual Fund Research Tool
BENEFITS OF COMPOUNDING
Benefits of Compounding (Illustration) Longer you stay the wealthier you may be SIP of R 1000 per month growing @12% p.a.* Experience the Magic of COMPOUNDING Period Principal R lac Final Value R lac Growth of Principal (Compounding Effect) 10 years 1.20 2.32 almost 2 times 15 years 1.80 5.05 almost 3 times 20 years 2.40 9.99 over 4 times 25 years 3.00 18.98 over 6 times * For Illustration purposes only. These are assumed returns and actual returns may vary. Monthly investment at the beginning of the month.
WHERE to invest via SIPs? NO RESTRICTION OF ANY ASSET CLASS for commencing a SIP MORE POPULAR FOR EQUITY as an asset class because The asset class is relatively more volatile and SIPs help to even out volatility by purchases made across market cycles EQUITY SIPs ideally should be long term of 5 years and above SIPs IN FIXED INCOME may be for short to medium term
Three Modes to Invest FUND HOUSE and its Points of Presence INTERMEDIARY Bank, Distributor, Independent Financial Advisor (IFA) ONLINE Through investment portals * of Fund House/ Distributors * Key Step is KYC or Know Your Customer form KYC form available with mutual fund, distributors, RTA or KRA (KYC Registration Agency)
WHEN to start a SIP?
WHEN to start a SIP? NO PARTICULAR TIME TO START A SIP - Regularity and consistency is more important than timing - SIPs actually make market timing irrelevant FREQUENCY OF SIPS is typically monthly or quarterly - Monthly SIPs are more popular - SIP date needs to be predefined
WHAT not to do in SIPs (Illustration) Delay or discontinue a SIP Target of R 1 crore at Age 60 @12% p.a.* Start Age Monthly Investment R 25 years 1,540 30 years 2,833 35 years 5,270 40 years 10,009 45 years 19,819 An Early Start is Good 5 Year Every Delay Doubles Monthly Investment needed Only R 1,540 p.m. needed if you start at 25 years but if you start 5 years later and so on R 2,833 p.m. * For Illustration purposes only. These are assumed returns and actual returns may vary. Monthly investment at the beginning of the month.
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