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Friday, June 8, 2012

Mutual Fund SIP - How is Working...


Many investors keep waiting for the markets to come down and a lot of times, markets move in just the opposite direction leaving such investors with no option but to keep their money idle or to invest at even higher levels.

Concept

Just like a Post office Monthly Recurring Deposit Scheme you pay for 5 years monthly certain amount and get back after 5 year your deposit amount and 8% interest on your investment. If your invested monthly 1000 in Post office RD scheme after maturity (5) you get 78 to 79 thousand .
A monthly SIP of Rs 1000  would grow to Rs 92000 in 5 years

What is a Systematic Investment Plan (SIP)?

A Systematic Investment Plan (SIP) is a disciplined approach to wealth creation. It allows the investor to adopt a systematic and dedicated approach to financial planning by inculcating a regular savings habit.
Instead of investing a large amount at one time, the investor can choose to stagger his investment at regular intervals according to his convenience and ability.

How do you benefit from SIP?

  • Discipline   Since you invest regularly, it makes you disciplined in your savings, which leads to wealth accumulation. Disciplined investing is vital to earning good returns over a longer time frame. 
  • Power of Compounding SIP helps you to start investing at an early age to meet the greater expenses of your life. Saving a small sum of money regularly makes money work with greater power of compounding with significant impact on wealth accumulation.
  • Rupee Cost Averaging  SIP minimizes the effects of investing in volatile markets. It helps you average out your cost by generating superior returns in the long run. It reduces the risk associated with lump sum investments. Since you get more units when the NAV drops and fewer when it rises, the cost averages out over time Thus the average cost of your investment is often reduced. 
  • Convenience and Regularity SIP gives you the convenience to pay through Axis Bank Electronic clearance service (ECS) or Auto Debit. You can decide the amount and the mutual fund scheme. A fixed amount will automatically get debited from your account on a date specified by you. 
 



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