The ABC of SIP - Systematic Investment Plan

Team CrawFin/ Harshal Jawale, CFP^CM

Source for Sachin Tendulkar Study - Rediff 

Systematic investment plan (SIP) is a simple yet disciplined approach of building wealth over a longer period of time. Investments done in designated mutual funds usually in route to meet specific financial goal.

To build a large corpus over longer period (usually 3-5 years) of time requires focused and regular investment pattern, that is what followed by SIP route. Short term market fluctuation of 10-20% makes it irrelevant for SIP investor to change his/her investment approach.

Convenience of investing small sum on monthly/weekly basis makes more attractive instrument of investment. SIP enables you to invest a pre set amount in the scheme of your choice on the applicable NAV of each transaction date. Each transaction will fetch you additional units that will be added to your investment account, thereby helping you build your investment at regular intervals.

Minimum Amount – INR 500

Frequency of Investment – Monthly/Quarterly

Specified Dates – 1^st, 7^th, 15^th and 25^th of the month

Investment mode – Auto debit/Post dated cheque

Returns Expected – One may assume 10-12%/yr from historical data available

Goal setting Calculator – Use IRR function to determine desired combination of SIP amount, time and Final corpus

Charges – There are no significant entry/exit load, fund management charge ranges from 1.5-2.5%/yr

Tax – Equity schemes when hold more than 1 year attract no on profits generated

One need not follow scheme determined dates for wealth creation; if you are disciplined by yourself you can keep on investing regularly into Mutual funds/ETFs. Purchasing ETFs on exchange at self determined pattern will yield better returns than SIP at pre-determined dates. Investing on a particular date in future need not fetch you best possible NAV for accumulation. Buying on a day when index is down more than 1% with minimum 50 such transactions a year is one possible approach. Daily buying 1 gm of Gold on exchange have practically given me 40% returns in last 7 months.

Just keep playing game like Tendulkar has done over the past two decades. Do not bother about short term declines, Tendulkar never said “My team is losing every game so I will not play next few matches”. Of course Cricket is a team game so invest into index fund while following strategy, investing into single stock with such strategy might backfire.

Make small investments just like taking a sip of coffee to enjoy the experience !!!

Wealthy Investments need Healthy Methods.