Systematic Investment Plan: Advantages of SIP

“Little drops of water makes a mighty ocean”, this proverb stands true for Systematic Investment Plan. Systematic Investment Plan (SIP) allows an individual to invest in mutual funds through installments. This provides an opportunity to the individual who wants to invest but cannot afford to make heavy investments at one time. SIP also cultivates the habit of regular saving in people and at same time they can also satisfy their needs.

Some of the advantages of SIP’s:

  • The power of compounding – A SIP gives the power of compounding that is the interest   earned on the principal is being re-invested with the principal amount this enables the customer to get greater returns  and especially if the consumer starts saving from  an early age.
  • Rupee cost averaging –This advantage can be explained with the help of the following example.

Suppose a person X invests Rs 12,000 and the per unit cost of the chosen scheme is Rs 10, so he would be able to buy 1200 units of the scheme. Another person say Y invests in installments of Rs 1000 for 12 months so that his investment amount equals X. The number of units that Y will buy depends on the price of the scheme for that particular month. If the price of the scheme goes down he would be able to buy more number of units and if the price goes high he would be able to buy lesser number of units. Suppose the following fluctuations takes place in the following manner:

The illustration is based on assumed rate of return and may differ from the actual rate of return.

Average price of each unit=Rs (110/12) =Rs 9.167

Average price paid by person Y per unit of the scheme= Rs 12000/1324.24=Rs 9.06

Average price paid by person X per unit of the scheme=Rs 12000/1200=Rs 10

Thus investing in SIP would give us greater benefits.

  • Regular investing-SIP inculcates the habit of regular saving and this habit helps the individual in making huge amount of money.

Some of the financial institutions offering Systematic Investment Plan-

  • SBI Mutual Fund

Scheme Name Investment Objective Min investment Amount Exit load
SBI MAGNUM COMMA FUND To generate opportunities for growth along with possibility of consistent returns by investing
predominantly in a portfolio of stocks of companies engaged in the commodity business within the following sectors – Oil & Gas, Metals, Materials & Agriculture and in debt & money market instruments.
Rs 5000 For exit within 1 year from the date of allotment – 1%; For exit after 1 year from the date of allotment – Nil.
SBI MAGNUM EQUITY FUND The objective of the scheme is to provide the investor – Long term capital appreciation by investing in high growth companies along with the liquidity of an open-ended scheme through investments primarily in equities and the balance in debt and money market
instruments.
Rs 5000 For exit within 1 year from the date of allotment – 1%; For exit after 1 year from the date of allotment – Nil.
  • ICICI Prudential Mutual Fund

Scheme Name Systematic Investment Plan 
ICICI Prudential Dynamic Plan  Monthly SIP: Rs. 1,000/- and in multiples of Re. 1/- minimum installments: 6, Quarterly SIP: Rs. 5,000/- and in multiples of Re. 1/- Minimum installments: 4 
ICICI Prudential Focused Bluechip Equity Fund  Monthly SIP: Rs. 1,000/- (plus in multiple of Re. 1/-), Minimum installments: 6. Quarterly SIP: Rs. 5,000/- (plus in multiple of Re. 1/-), Minimum installments – 4.
ICICI Prudential Top 100 Fund  Monthly: Minimum Rs.1,000 + 5 post-dated cheques for a minimum of Rs.1000 each Quarterly : Minimum Rs. 5000 + 4 post-dated cheques of Rs. 5000 each Exit Load:Nil.

 

  • HDFC Mutual Fund

Scheme name Minimum Application Amount Exit Load
HDFC Balanced Fund- Dividend/Growth Rs.500 for Monthly & Rs.1500 for Quarterly
  • In respect of each purchase / switch-in of units, an Exit Load of 1.00% is payable if Units are redeemed / switched-out within 1 year from the date of allotment.
  • No Exit Load is payable if Units are redeemed / switched-out after 1 year from the date of allotment.
HDFC Gilt Fund – Long Term Plan – Dividend / Growth Rs.500 for Monthly & Rs.1500 for Quarterly Nil
HDFC Top 200 Fund – Dividend/ Growth Rs.500 for Monthly & Rs.1500 for Quarterly
  • In respect of each purchase / switch-in of units, an Exit Load of 1.00% is payable if Units are redeemed / switched-out within 1 year from the date of allotment
  • No Exit Load is payable if Units are redeemed / switched-out after 1 year from the date of allotment.

 

 

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