Invest with Discipline - SIP

Guys it has been long time since I wrote something. This time I thought of sharing my views on SIP(Systematic Investment Plan) into mutual funds. There are better ways of making quick bucks. But lets devote the whole blog to SIP. There are many of my friends who had invested into markets using the Mutual Funds just because of my advice. I would like to share my experience with mutual funds. Why should we invest in mutual fund and not directly to stock market? This can always be debated since on my blog on stock market I would tell learn to manage your money. But here I would tell you that lets leave it to experts. Same as when you need legal advice and assistance you look for lawyers, Doctors for medicine...to be precise..we always believe in experts...then why to take risk? Do you think they will leave their credibility at stake thinking its somebody elses money? Never...this is their job and will do their best. The risk of investing through mutual fund has lot of benefits: 1. It divesifies your portfolio. In some cases you maynot be able to buy different stocks in different sectors. But mutual funds helps to cover it. Since every rupee is divided into different paisa's for different stocks. 2. Will have experts working for you. We can never hire someone to look after our money since it may end up taking more than what you have invested. But here we get free service for that. 3. Can get better sleep Since your portfolio is already diversified the fall of one sector won't lead to a complete loss. Assuming you have invested in Diversified funds or ELSS. Guys I think I am getting carried away from my topic. So why SIP? How is it different from taking Mutual Fund at one shot? I don't want to use any technical terms and confuse you.(I am also too poor at it) Systematic Investment Plan: The term itself tells you the importance of it. Its a plan. A plan to invest systematically. So you already know you will have a plan while entering this. Since its systematic it adds discipline to your life. Let me quote an example to explain the benefits. It happened that my friend took a mutual fund lets name it 'X Fund' this year January with a NAV(Net Asset Value) of Rs.10 for Rs.5000. Remember the age old saying 'No one can time the markets!'. Unfortunately the market crashed. Lets assume the following NAV values for the Mutual Fund 'X' 1. February - Rs.9 2. March - Rs.8 3. April - Rs.9 4. May - Rs.10 Simple mathematics tells you that he got 500 units when he bought the mutual fund. At the market risk was so high that his Asset value every month was going haywire and in few months the markets recovered and now in June the value of his asset would be Rs.5000 Now imagine I decide to take the same mutual fund 'X' and also decide to go for an SIP. First month I pooled in Rs.1000 and got only 100 units 1.February - Rs.9 - 111 units 2. March - Rs.8 - 125 3. April - Rs.9 - 111 4. May - Rs.10 - 100 Now I have invested the same Rs.5000 and total number of units with me is 547. So in June the value of his asset would be Rs.5470. This is one benefit that we get when we are in mutual funds using SIP. This works for a market when there are fluctuations. But can you point out a market with no fluctuations. That just keeps going high every other day until now. I don't think we can even imagine that. Remember when market goes up I will be making more profit since I have accumulated more units at the bad time. We know for sure there are bad times in markets but can never guess will it go to worse. So better start investing today and in long run you will benefit for sure. Let's assume this 5 months in the above example the market kept on rising as a worst case. What happens? The units we gets reduced. But remember that the value of each unit is increasing. This makes your asset grow. Now live is not just 5months and mutual funds are not for 5 months too. You should also allow your expert to work on your money. Needs to give him his time. Say 2-3yrs minimum and stay invested. No need to add more money if you think it is not of use. Another advantage of SIP is that we can miss paying the installments. ha ha... this is the tricky part...its not a commitment...if you pay you benefit and if you don't only you lose no one else...You can decide the time frame and also the amount. I believe in India we can invest starting from Rs.500 per month in different SIP's. We can easily afford Rs.500 to be invested...just by skipping weekend outing and a couple of movies at the multiplexes...This will not affect your day to day expense and after few years from now you can reap benefits...Look for Mutual Funds with less or no entry and exit loads. There is a news that Govt. may take off the entry load from Mutual funds from August this year. So check that out and plan for your SIP's starting this year. I don't have any recommendations to pick the mutual funds. But do browse through the link http://www.valueresearchonline.com and http://www.moneycontrol.com for more details. I have taken SIP's for three mutual funds and also invested without SIP to other mutual funds which are still industry top performers. This blog is an outcome from my comparison of profits in both. To take mutual funds in India is very easy. Never think you have to go looking. Steps required: 1. Do your homework and pick your fund. Get help from your friends who have some experience if needed. 2. Go to any bank or agent. For e.g: ICICI Bank or SBI or HDFC. They all sell all mutual funds. Its not just their own products. If you need someone to assist you in Cochin, I can refer you to my friend.(No commission for me don't worry.) 3. Take your PAN Card and Cheque leaf.(Assuming you know your account number) with you. It will be easy if you opt for ECS clearance. Otherwise needs to provide with those many cheques as many installments. 4. Sign few places as they instruct. 5. Get the acknowledgement slip right away. 6. In couple of days your SIP will be active. GOOD LUCK! HAPPY INVESTING! My next blog on "How to explore Stock Markets!" This is an original snapshot from one of my SIP and see how market fluctuation helps my SIP.