Start SIP – Kautilya

SIP CALCULATOR

What are MF?

What are MF?

Types of MF

Types of MF

What is SWP?

What is SWP?

START A SIP

WHAT ARE THE METHODS TO INVEST IN MUTUAL FUNDS?

SIP

Lumpsum

STP

WHAT IS SIP?

SIP, also called the SYSTEMATIC INVESTMENT PLAN tops the best route to invest your money in a mutual fund.  It is a systematic way of investing a fixed sum regularly in the stock market through mutual funds on a daily, weekly or monthly basis for as low as INR 500. It gives the investor the freedom to choose the amount of investment and frequency while averaging out the cost of investment over a period of time.

Yes, as explained above mutual funds offer investors economies of scale as the investor money is invested on a macro level in a wide variety of companies, which in turn minimises risk. 

HOW DOES SIP FUNCTION ?

  • Every day, week or month, a fixed amount is deducted from your bank account.
  • As per the NAV on that date, units of Mutual Funds are bought and allotted to your account.
  • Over a period of time, units are accumulated at different cost prices, thus averaging out the cost in the long run.
  • The investor can redeem or switch the units to another scheme whenever needed subject to terms and conditions.
  • Every Mutual Fund has an expense ratio, which is the cost of running the AMC. This cost is divided among investors as a fee.

HOW DO SIP UNITS GROW ?

  • Mutual Fund units are thus bought and accumulated with each investment at different prices at different time ranges. When the market is up or bullish, the Mutual Fund NAV would be high enabling purchase of a lesser number of units at a high price.
  • When the market is low or bearish, the Mutual Fund NAV will be low, enabling purchase of a higher number of units at a low price. In this way, as the market moves through its phases from volatility to bullish to bearish or flat range, a mutual fund investor has accumulated units at all kinds of price ranges, sometimes high, sometimes medium and sometimes low.
  • In the long run, the advantage that SIPs give the investor is that the cost of the Mutual Fund investment comes down dramatically due to the law of averaging which is called “Rupees Cost Averaging”. Not only that, the law of compounding too works wonderfully in the SIP route. So there, not only do you manage to accumulate a great number of units but that too at an average cost of all market cycles. Isn’t that great news?!

TIME PRINCIPLE IN SIP WORKS IN FAVOR OF THE INVESTOR

SIP takes advantage of the time principal of mutual fund investment, enabling the investor to invest at different time ranges of the evolving market. Regardless of the market conditions, the investor invests regularly on a fixed date over a period of time.

LET’s DO SIP MATHEMATICS

Let us check the above with an example here.

Suppose you are investing Rs.10,000 in a month when the NAV is Rs.10, you will get allotted 1000 units because 10000/10 = 1000 units. Next month, on your SIP date, when the NAV is  Rs 8, you will get allotted 1250 units 10000/8= 1250 units. Next month, on your SIP date, if the NAV moves to Rs 12, you will get allotted 833.3. units, as 10000/12 = 833.33

You bought more units when the markets were lower, taking advantage of the dips in the market. As the experts tell us ‘Buy Low, Sell High’. SIPs follow this rule effectively and accurately.  Over a period of time, the greater the number of units accumulated, the higher the returns can be. As the NAV would keep increasing over the years, it would deliver a high rate of return for the NAVs bought a low levels. So at the time of redemption, SIP units can give you a fantastic return in the medium to long term.

A financial advisor can help you to monitor your portfolio to analyse it for the perfect exit in profits as the Rupee Cost Averaging neither ensures you profits nor protects you from making a loss in declining markets. Therefore, for Mutual Funds and SIPs to give good returns patience, consistency and discipline are required.

BENEFITS OF SIP

  • SIP creates a disciplined financial investor.
  • SIP can be started at as low as INR 500
  • A small amount invested at regular intervals over a period of time can give fantastic returns.
  • SIP is flexible and grants freedom of choosing at what intervals to invest
  • SIP ensures that your money is invested consistently and regularly.
  • SIP creates a systematic plan to achieving your medium to long term goals
  • SIP is strategic as it works on the principle of time and averaging

LUMPSUM MUTUAL FUND INVESTMENTS

KAUTILYA’s experts advise Systematic Investment Plan as the best route to start your investment journey in mutual Funds. But if it is pertinent due to some reason or for tax saving purposes as in the case of ELSS, the investor can go for lumpsum investment in mutual funds. The lumpsum investment does not give the cost averaging factor that is advantageous to bring down the purchase cost of Mutual Funds.

SYSTEMATIC TRANSFER PLAN (STP)

A better alternative to Lump Sum mutual funds is the Systematic Transfer Plan (STP). In this plan, a regular transfer of funds in small installments takes place from one mutual fund scheme to another scheme house under the same Mutual Fund house or AMC. This regular transfer is the same as the SIP route but here the lump sum money is first deposited in a liquid mutual fund scheme which does not have a lock in period or penalty for premature withdrawal. Instructions are given to the Liquid MF to transfer a fixed sum of money just like in the case of a SIP to an equity, debt, balanced or hybrid mutual fund scheme.

ADVANTAGES

   The Liquid mutual fund scheme earns basic or standard interest on the amount deposited as per the rules of the scheme.

   The Systematic Transfer takes advantage of the dips in the market to gather higher units at an average cost.

   This method is safe and secure compared to lump sum.

   Income is earned through both kinds of mutual funds, liquid as well as SIP.

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