| “I've found that when the market's going down and you buy funds wisely, at some point in the future you will be happy. You won't get there by reading 'Now is the time to buy.'” - Peter Lynch |
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| Through a SIP you invest in a mutual fund on regular basis irrespective of the market movement. For example, if you would have committed yourself to invest let’s say Rs 1000 every month for year 2006 in ABN AMRO Equity Fund, following would have been the result: |
 |
| Date |
Nav in Rs. |
Approx number of units you will get at Rs 1,000 |
| 1-Jan-06 |
19.74 |
50.66 |
| 1-Feb-06 |
20.75 |
48.19 |
| 1-Mar-06 |
22.05 |
45.35 |
| 1-Apr-06 |
23.93 |
41.79 |
| 1-May-06 |
24.9 |
40.16 |
| 1-Jun-06 |
20.61 |
48.52 |
| 1-Jul-06 |
20.3 |
49.26 |
| 1-Aug-06 |
19.98 |
50.05 |
| 1-Sep-06 |
22.26 |
44.92 |
| 1-Oct-06 |
23.72 |
42.16 |
| 1-Nov-06 |
25.09 |
39.86 |
| 1-Dec-06 |
27.29 |
36.64 |
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| In this case when the NAV was high, you get fewer units and when NAV is low you get more units. For the twelve months period, you would have 537.57 units of par value Rs 10 each by investing just Rs 1,000 every month. Your total investment of Rs. 12,000 would be now worth Rs. 14670.30. |
| SIP Vs. No SIP (For 7 month Period: May – Nov 2006, using the above shown fund) |
| |
Case 1: No SIP |
Case 2: Using SIP |
| Investment |
One time |
Monthly (for 8 months) |
| Invested on |
1st May 2006 |
1st of each month from May to Nov. |
| Investment Amount |
Rs 70,000 |
Rs. 70,000 (10,000 per month) |
| Number of Units Bought |
2811.24 |
3149.31 Monthly (401.61 + 485.20 + 492.61 + 500.50 + 449.24 + 421.59 + 398.57) |
| Networth on 1st Dec 2006 |
Rs. 76718.88 |
Rs. 85944.55 |
| Gain |
Rs. 6718.88 |
Rs. 15944.55 |
| Absolute Return |
9.60% |
22.78% |
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| SIP gives 137% more return than simple one time investment! |
| In first case you get fewer units and in Second Case you get more units because you keep on buying at low NAVs. Hence by using SIP you gain 137.3% more. |
| Why use a SIP? |
| Following are some of the key benefits of a SIP |
- Creates discipline in your investing activities: You are forced to direct some of your earning every month in a mutual fund of your choice. This could either be debited directly from your account or you could give post-dated cheques to the mutual fund.
- No need to second-guess the market: Stock market has a habit of fluctuating frequently without any warning, at least not to an individual investor. Though SIP an individual investor can initiate a wealth building system without worrying about market ups and down. For example, if you would have invested in Prudential ICICI Technology Fund during the dotcom and tech boom and subsequent slowdown in the sector following would have been the result:
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Let’s say you invested Rs 1000 every month for five years from Mar 2000-Mar 2005. Following would be the result:
|
| Investment period |
Mar 2000 – Mar 2005 |
| Monthly investment |
Rs 1,000 |
| Total amount invested |
Rs 61,000 |
| Value of investment on Mar 7, 2005 |
Rs 1,09,315 |
| Return on investment |
23.87% |
- A number of mutual funds do not charge an entry load if you opt for a SIP. Entry load is a fee charged by the fund, a percentage of your investment.
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