Guide me regarding systematic investment plan.?

There are two ways in which you can invest in a mutual fund.

1. A one-time outright payment
2. Periodic investments

This is referred to as a SIP. (second one)

That means that, every month, you commit to investing, say, Rs 1,000 in your fund. At the end of a year, you would have invested Rs 12,000 in your fund.

Let's say the NAV on the day you invest in the first month is Rs 20; you will get 50 units.

The next month, the NAV is Rs 25. You will get 40 units.

The following month, the NAV is Rs 18. You will get 55.56 units.

So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.

Here are some FAQs on the SIP

1. Is there a load?

An exit load is a fee you pay the fund when you sell the units, just like the entry load is a fee you pay when you buy the units.

Initially, funds never charged an entry load on SIPs. Now, however, a number of them do.

You will also have the check if there is an exit load. Generally, though, there is none. Also, if there is an entry load, an exit load will not be charged.

An exit load may be charged if you stop the SIP mid-way. Let's say you have a one-year SIP but discontinue after five months, then an exit load will be levied. These conditions will wary between mutual funds.

2. What is the minimum investment?

If you do a one time investment, the minimum amount that you have to invest is Rs 5,000.

If you invest via an SIP, the amount drops. Each fund has their own minimum amount. Some may keep it at least Rs 500 per month, others may keep it as Rs 1,000.

3. How often does one have to invest?

It would depend on the fund.
Some insist the SIP must be done every month. Others give you the option of investing once in three months or once in six months.

They also give fixed dates. So you will get the option of various dates and you will have to choose one. Let's say you are presented with these dates: 1, 10, 20 or 30. You can pick any one date.

If you pick the 10th of the month, then on that day, the amount you have decided to invest in the fund has to be credited to your mutual fund.

4. How will an SIP help?

When you buy the units of a fund, you may do so when the NAV is really high. For instance, let's say you bought the units of a fund when the bull run was at its peak, leading to a high NAV.

If the market dips after that, the value of your investments falls and you may have to wait for a long while to make a return on your investment. But, if you invest via a SIP, you do not commit the error of buying units when the market is at its peak. Since you are buying small amounts continuously, your investment will average out over a period of time.

You will end up buying some units at a high cost and some units a lower price. Over time, your chances of making a profit are much higher when compared to an one-time investment.

In mutual funds you will be able to adopt this option so that you can invest in a monthly or similar fixed period of any company you choose say for example Reliance Infrastructure Investment. You may choose to pay INR 10,000 every month for 12 months where by every month you will be allotted with equal at the market rate the units and this will help you to average the cost of cumulative units for the year which will be advantage to you so that your savings grow at the same time you will be averaged with the cost of the Units.

SIPs are plans which are like insurance plans which demand a fixed installment investment in the form of cash/cheque. Your money will be invested in the portfolio of securities selected by you. Th returns will be distributed according to the number of units allocated.

Systematic investment allows you to invest periodically in any of the mutual funds. This allows you to invest small amounts every month or every quarter, so that you do not have to invest a huge amount at once in the fund.

SIP means investing a fixed amount periodically (say monthly) in a selected investment avenue. Usually SIP is used with reference to Mutual Funds.

The advantages of SIP are
1) it helps us in saving money in a disciplined way.
2) Creates a large corpus without pinching ur pocket .
3) Helps to tide over the volatility of the stock market. i.e. achives Rupee Cost averaging .
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Happy investing