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Human Life cycle

  • Human life is long and complex and passes through many stages. Each stage has its own challenges and opportunities.
  • One needs to plan for their aspirations like marriage, child's education: post retirement years, etc. from an early stage itself.
  • How one manages ones income in the productive years has a similar effect on one's unproductive years as well.
  • An important question that arises then is – "Will saving alone meet all present and future expenses?"
  • The Answer – No! Introducing 'Inflation' – The Invisible Killer

Have you ever wondered why the same thing costs more than what it used to cost a few years back? Also, your savings which could buy you a particular set of items previously would now buy you less of the same items.

Simple Steps to Wealth Creation

Start Early – be the first to take the first step

Consider the following scenarios where different investors start investments at different age levels and invest Rs 2000 per month till the age of 60 years. The person who started investing at the age of 25 years stands benefitted more as he has started early and can benefit from power of compounding. Even a higher investment amount may not compensate for the growth potential of starting early.

Invest in the Right asset class – Risk return balance to optimize growth

Inflation for the past 18 years has been on an average at 6.43% on CAGR basis; an investor should always look at an asset class which has the potential to generate positive inflation adjusted returns. Historically on analysis for the past 25 years, equity as an asset class has the potential to beat inflation and generate positive post tax and inflation adjusted returns. (Refer to the chart below)

Rising expenses and falling value of money are the Income punctures which every one faces. Also, Lifestyle Inflation is leading to many luxuries becoming necessities over the last few years, a trend which will continue even in future. A mobile which was not necessary 10 years back has become one now.

So, how do beat inflation and meet my future goals? It would require simple rearrangement of priorities.

Savings can contribute towards realizing one's aspirations and achieving a comfortable lifestyle even post retirement. However how do we beat inflation and create wealth?

Investing with a plan – Consistent and continuous investment

Systematic Investment Plans (SIPs) in mutual funds has long been considered one of the better ways for the common man to invest in Mutual Funds

What is a Systematic Investment Plans?
SIP is s strategy whereby you commit to invest a fixed amount at specified intervals into the fund of your choice. Since the amount is invested regularly and is constant, you get more number of units in the falling market and fewer units when the price is high. It helps you to smoothen out the market fluctuations and the investment will be a low cost over a period. This strategy in investing is called 'Rupee Cost Averaging'

Benefits of Systematic Investment Plan

  • Systematic Investment Plan allows you to buy more number of units as the market moves down and less units as markets moves up.
  • Reduces risk by spreading investments over a longer period of time at various levels of the market.
  • Reduces cost of Investment in Fluctuating Markets.
  • Consistent and continuous implementation of these strategies.

Rupee Cost Averaging
Rupee Cost Averaging is an effective investment strategy that eliminates the need to time the markets. All you have to do is invest a fixed, pre-decided amount of money on a regular basis over a long period of time. Since the amount invested per month is constant, you buy more units when the price is low and fewer units when the price is high. The table given below clearly illustrates the concept.

As mentioned above, the average price for the investment is Rs. 9.97 and 1003 units would have been purchased. However in the event of the lump sum purchase the price of investment would have been 10 with only 1000 units purchased. The concept of Rupee Cost Averaging is to invest across market cycles thus bringing the cost price down, which contributes to the returns of the investors.

SMART INVESTOR PLAN – Practical Report
The chart below shows the performance of Rs. 2000 SIP in BSES Sensex for different time period. The chart clearly shows how the following the SMART INVESTMENT PLAN helps reap benefits over a longer period of time.

Time is the KEY in the markets: The longer you invest, greater the benefits