Why SIP Investments is Good

Under SIP small amount of money is invested at regular interval in a mutual fund scheme of your choice. Interval can be daily, monthly or quarterly. The minimum investment amount can be as low as Rs. 500.

Investments in best performing mutual fund schemes have performed extremely well in the last 10 years. Take for example returns of the Sensex from the year December 2007 when it had touched 20,291 and October 2014 when it touched 27,866 i.e. it has gained by 37.33% (annualized: 4.71%). So if someone has invested Rs. 2.70 Lakh in December 2007 then the returns would be 3.71 Lakh in October 2014. Although this is not a very great return. But a Rs. 10,000 quarterly investment for the same period (i.e. 28 quarters, Rs 2.80 Lakh) would have given return of Rs. 4.59 Lakh. i.e. a return of 64.01% (annualized yield: 13.88%). The returns would have been even higher scale, if systematic investment was done in a top performing mutual fund scheme.

How SIP delivered better results?

Greater number of units were purchased when the market was trading lower and NAV was low and lesser units were bought when it was trading on higher point and NAV was high. Thus, the average cost of units was lower than the initial purchase price per unit. Take above example – Rs. 2.70 Lakh investment would have given you 13.30 units. But on the other hand quarterly investment of Rs. 10, 000 would have given you 16.48 units as more units were bought when the market was on a lower side.

SIP works on a very simple rule keeping your long term financial goal (child’d education, marriage, retirement etc.) in mind. “Earn every month, spend every month, save every month but invest every month”.

Best advice as per the industry expert on SIP performance is to regularly invest for 3-5 years. Shorter the time frame lesser would be the return. And all this is possible when best mutual fund scheme is selected.

Other Benefits of SIP Investments

1. Expert Management: Fund managers extensively do research for each company/industry as a whole. Most importantly they regularly keep a track of market and make informed decisions before investing.
2. Diversification: Since your money is diversified, risks of investors losing the money is very less because diversification balances any negative impact.
3. Transparency: Since MF investments are regulated by SEBI and AMFI, the whole process is very transparent making it a safe bet.