– Systematic Investment Plan
All the questions
that you want to know the answers to- the why,
the how, the what etc. neatly put forth for your
Do you want to make a lot
of money sometime in the future without worrying
about short term swings and always beat markets
and have ample access to the money that you have
invested yet be relatively sure that the targets
would be met? If just reading this long sentence
has wound you up but if your wish list is really
this long then here it is. The best thing to have
happened to us since Aladdin’s Lamp is here
and we explain everything about it. Read on if
you want to know everything about it and if you
still have some queries then let us know and we
would try to clear all your doubts.
SIP is the
popular shortened form for Systematic Investment
Plan. This form of investing refers to the
system of putting in small amounts at regular
intervals into a mutual fund scheme to meet a,
or a set of medium to long-term goals. The principle
of regular investing provides a working mechanism
of beating markets - IT IS NOT ONLY IMPORTANT
HOW MUCH YOU INVEST IN THE MARKETS BUT IT IS FAR
MORE IMPORTANT HOW MANY TIMES YOU INVEST.
it has been observed that target based investments
are the most likely to succeed. The reasons for
this are not very difficult to find. The discipline
to save and invest for the target is high because
there is a tangible objective and more importantly
YOU have set the objective. So
it can be assumed that once you have set for yourself
a target, viz. buying a house, higher education
for the children or your own retirement planning,
you would be more focused on meeting these objectives.
But remember, discipline is the most important
factor and it makes sense that the discipline
is strictly enforced.
are the benefits of SIP?
Long term wealth creation
an easy way for you to pace yourself towards a
stated goal. Instead of needing to put down a
large amount in one go, you can calculate how
much you need to put in on, lets say a monthly
basis. But please remember SIP does not work on
short terms and there is no way you would predict
markets on an annual basis. The minimum duration
that we would advice is three years but it gets
better the longer it goes.
We are often
compelled to envy someone who has made a killing
in the stock markets but we completely ignore
the many instances when he had seen his money
simply vanish. Nor do we really advertise our
goof ups as readily as we speak of our successes.
But please understand-it is impossible to beat
the markets and even the best fund managers would
come short on beating markets all the time. But
we can definitely, largely de-risk ourselves from
the entire gamut of high markets and low markets
and needing to stay one step ahead. By riding
on all the cycles, it simply averages out the
highs and the lows. So long as the economy grows
it is impossible that the markets or specifically
the stock market indices would not. Markets always
tend to move along with the P.E(refers to the
ratio of the price of the stock to the profit
per share) growth of the market, apart from temporary
aberrations. Just use this simple and easy step
to make your fortune.
if we suddenly needed some money, a little more
than we have immediate access to? Mutual funds
and the equity mutual funds are largely open ended,
and we advocate largely open ended schemes. The
good news is that you can pull out the entire
amount lying in your account. Just like that.
No questions asked. And the entire amount would
be in your bank account within three working days.
Can we look
into our crystal ball and say that SIP is guaranteed
to make money? The simple answer is yes but with
a condition. As long as we are investing in equities,
in an economy that is growing then we can safely
say that we are guaranteed of performance. It
has been proven across diverse markets and a variety
of time spans with the same set of results. It
is so common in the western world that SIP is
now the most preferred way to accumulate wealth
amongst the salary earning population as well
as self employed professionals. Frankly do you
expect that India would not grow or even worse,
go down in the next decade or more? Really that
is not impossible but very very unlikely.
all should use the system – what age, what
profile, what stage of life etc.
is a long-term wealth creation tool. It is best
suited for Professionals who would want to painlessly
plan for their long-term goals.
Self-employed professionals who need to definitely
plan for their long-term goals and who do not
have the benefit of pension, gratuity etc. Businessmen
who would want to hedge their risk by not putting
everything back into their own business but also
take minor position in other business cycles as
well. For those planning to utilize the Income
Tax bracket. Everybody else!!!!!!
does it work?
Starting an SIP is very simple. You just need to
fill up a form and payments could be made by cheques
or by using the auto debit facility from your bank.
But you can stop the payments for one time or for
several times or for the remainder of the stated
time frame. It is actually very simple. Unless of
course it is a lock in scheme where the scheme does
not allow withdrawal.
Mutual fund schemes (the ones that are majorly
invested in equity) do not have any long term
capital gains tax, dividends are tax free and
short term capital gains are taxed at 10% Plus