An SIP – systematic investment plan is nothing but smaller and periodic investments into the equity as opposed to lump sum investments. Whether you start SIPs because you do not have lump sums to invest in one go or because you do have lump sums but are vary of the volatility in the markets, the result is the same.
An SIP allows you to invest without having to worry about the ups and downs of the markets i.e. without getting into the whole ‘time the market’ funda. You can average out the entry levels with the objective of reducing risks of lumpsum investments.
When the markets are going up, and share prices are higher, then you end up with lower units for your fixed investment. When the markets are going down, and share prices are lower, you get more number of units. Ultimately the average price of the total units you have gets evened out.
Let’s look at this with an actual example.
An investment of Rs.240,000 made on 1st January 2008, in one of the better performing large cap funds as of 30th June 2010 is worth Rs.254,139. During this time, Sensex has fallen by 50% and is now back at the same levels. However an SIP in the same fund, totaling the same amount but over 24 months at Rs.10,000 each month is actually worth Rs.401,861!
So falling markets, volatile markets, uncertain markets, where the long term story is still good, are profitable markets to invest through SIPs.
Plus an SIP is affordable - you can start at a small amount of Rs.1000 a month and it’s easy to do since you only have to cut the first cheque and the remaining payments happen like EMIs through ECS.
On top of all this, an SIP also helps in disciplining your savings by keeping temptation away from you – no money in the bank, so none to waste.
So there you have it…SIP - a smart n intelligent path to wealth!
This 2012..Start on the intelligent path!