Systematic Investment Plan

[life2007]

Hello !

Is there any difference ::

a) if one were to invest say 1000.00 each month through SIP pre-
committing for one year and

b) invest the same amount by small lumpsum each month (purchase) for
one year?


Any one investing online by www.timesofmoney.com ? - A Times of India group. They dont have online SIP facility but can purchase/switch/redeem online by lumpsum.

Thanks

Regards

Jeet

[anuj721741]

I have one query for SBI magnum Tax saver or for any MF, please let me know "Is it mandatory to invest annualy in a mutual fund or just to invest once for three years

locking period?" because if we take ULIP policy then we have to invest three years annualy to keep the policy active, I think that should not be the case here, please suggest?

[nkr_03]

ULIP is Different Case that. Tax Saving is different don't mix the Both.
SIP I feel its returns r small copare to lumpsum purchase

[mrindia]

Of course you can opt for SIP as well as small monthly purchases every month timing the market. Indeed you can do additional purchases in your SIP folio.
No experince wid timesofmoney.com

[Vicky78]

Why “Trading” in MFs is not the best thing to do
http://www.moneycontrol.com/india/ne...o/13/30/327454

The reason people invest in Mutual Funds is because they don’t have enough time and the inclination to monitor and manage their own funds. They prefer handing their money over to a professional fund manager who would invest on their behalf in equities, debt, gold or any other asset class.

However several people, besides just selecting a good mutual fund, also tend to go one step further and try to ‘trade’ with their mutual fund investments and try to time the market. (Also read - How to become a better MF Investor?)

When they feel markets are high, they send in redemption requests thinking markets would come down and when the markets are falling they tend to panic and once again send in redemption requests thinking everything is headed for doom.

Or alternatively others keep switching from one mutual fund scheme to another within a matter of weeks. They exit one mutual fund and enter another; thinking they are being smart and can get more returns this way.

I know of one person who told me how he traded in mutual funds, and how he constantly kept track of different mutual funds. Every time a new fund offer (NFO) came to the market he exited his existing mutual fund investments to enter the NFO.

Now part of the reason people tend to trade and move in and out of mutual funds so rapidly is because mutual fund distributors and brokers promote this type of thinking. If you don’t move in and out of mutual funds rapidly, your broker won’t make any money. Remember that everybody works in his or her own best interest, and the best way a broker can make more money is by letting you churn your portfolio.

The entry load you pay is income for your broker. Of course many of you might have started investing directly in a mutual fund and might not have to pay the entry load, however things like exit loads would still prevail in the short term.

You might make more returns than a bank FD, even if you churn, but you can make much more if you don’t trade mutual funds. You can save the excess entry load and exit load, which you would have to pay. You can save time and effort.

And also the entire logic of investing in a mutual fun is to let the fund manager analyze and take care of your money. If market correct the fund manager has to decide what to do and not you. All you need to do is invest regularly in quality mutual funds. In case you have the time and inclination to do research, why not start investing directly in stocks after doing research?

Many investors ask me, “When is it a good time to exit our investments?” The best time to exit your investments is when you need the money or when you feel the investment has no scope to go up further. In case you feel the Indian economy and Indian companies are having fundamental problems in the long run, that is when you should exit your investments. (Also read - Is it time to sell your investments?)

Always remember that no matter what investment you make; in the longer term risks always reduce if you have invested in quality. In order to be truly wealthy you need to have a long-term vision and belief in India’s economic growth.

A lot more needs to be done in our country and this might be a challenge to a few, but for investors like me this is a wonderful opportunity. Since I have the time and passion to learn I invest directly in stocks. I started investing with Rs. 750 when I was sixteen years old and by the grace of God the Indian markets have been very kind to me. However for all those of you who don’t have the time or inclination to learn more about investing in stocks directly, mutual funds are a great way to invest and be part of India’s economic growth.

Just remember investments are like seeds, and will grow into wonderful trees only if you give them time.

[mrindia]

Hey Vickey!
Nice reading indeed!
mr india

[fast_rizwaan]

Unfortunately, many new investors seem to be under this misconception that SIP (Systematic Investment Plan) was a type of mutual fund. But a SIP (Systematic Investment Plan) is not a type of mutual fund, it is a Method of Investing In a Mutual Fund.

How You Can Invest in a Mutual Fund?


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

1. One-Time Outright Payment

If you invest directly in the fund, you just hand over the cheque and you get your fund units depending on the value of the units on that particular day.

Let’s say you want to invest Rs 10,000. All you have to do is approach the fund and buy units worth Rs 10,000. There will be two factors determining how many units you get.

Entry load

This is the fee you pay on the amount you invest. Let’s say the entry load is 2.25%. Two percent on Rs 10,000* would Rs 225. Now, you have just Rs 9,775 to invest.

NAV

The Net Asset Value is the price of a unit of a fund. Let’s say that the NAV on the day you invest is Rs 30. So you will get 326.67 units (Rs 9800 / 30).

2. Periodic Investments

This is referred to as a SIP (Systematic Investment Plan).

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. [Only in Reliance mutual funds, you can invest as little as Rs. 100/- per month.]

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 must the payment be made?

You can opt for the Electronic Clearance Service from your bank; this means the mutual fund will, as per your instructions, debit a certain amount from your account every month.

Let’s say you have a SIP of Rs 1,000 every month and you have chosen to invest in it on the 10th of every month. Under this option, you can instruct your mutual fund to directly debit your bank account of Rs 1,000 on the due date.

If you don’t have the required money in your account, then for that month, no units will be allocated to you. But, if this continues periodically, the mutual fund will discontinue the SIP. You need to check with each mutual fund what their parameters are.

Alternately, you can give cheques to your mutual fund. In this case, they may ask for five Post Dated Cheques upfront with your first investment.

Since these cheques are dated ahead of time, they cannot be processed till the date indicated.

5. Must I state for how long I want the SIP?

Yes. You will have to state whether you want it for a year or two years, etc. If, during the course of this period, you realise you cannot continue with the SIP, all you have to do is inform the fund 15 days prior to the payout.

The SIP will be discontinued. You can continue to keep your money with the fund and withdraw it when you want.

6. Do all funds offer SIP?

No. Liquid funds, cash funds and floating rate debt funds do not offer an SIP. These are funds that invest in very short-term fixed-return investments. Floating rate debt funds invest in fixed return investments where the interest rate moves in tandem with interest rates in the economy (just like a floating rate home loan).

All types of equity funds (funds that invest in the shares of companies), debt funds (funds that invest in fixed-return investments) and balanced funds (funds that invest in both) offer a SIP.

7. Tax implications

Let’s say you have invested in the SIP option of a diversified equity fund.

If you sell the units after a year of buying, you pay no capital gains tax. If you sell if before a year, you pay capital gains tax of 15%.

Let’s say you invest through a SIP for 12 months: January to December 2007. Now, in March 2008, you want to sell some units.

Will you be charged capital gains tax?

The system of first-in, first-out applies here. So, the amount you invest in January 2007 and the units you bought with that money, will be regarded as the units you sell in March 2008.

For tax purposes, the units that you sell first will be considered as the first units bought.

8. How will a 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.

Source:

http://www.policydeal.in/what-is-mut...ment-plan.html

[justsayraj]

Good articles..
Thanks for sharing the information.

[Vicky78]

Originally Posted by mrindia

Hey Vickey!
Nice reading indeed!
mr india

Thanks Mr India

[sehribabu]

I have been investing in mutual funds since almost a year or so but in lumpsum amounts instead of SIP's.. I have many funds including some good tax saver funds like hdfc tax saver and sbi tax advantage

SIP's are a total new concept to me.. Are there any SIP's which allow flexible amounts.. Lets say 4000 in one month, 5000 in the second month and so on?
I have a medium risk appetite and plan to invest 30-40K in the coming six months..