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Systematic Investment Plan
Most of our individual financial goals like buying a car, house, child education, marriage, a foreign tour can be complete by available financial source only through proper planning of financial investment. Hundreds of investment plans are there and have individual characteristics. One of the most popular and preferred investment plans is the Systematic Investment Plan(SIP)
How SIP works?
In SIP, an investor invests the same amount at regular intervals in stocks or mutual funds. This method will do the trick of averaging the investor cost of acquisitions. Let us consider an investor invest Rs 1,000 per month for one year. Suppose, in the first month the NAV is Rs 20, the investor will get Rs 1,000 / Rs 20 i. e. 50 units. In the next month, if the NAV goes down to Rs 15, the investor will get Rs 1,000 / Rs 15 i. e. 66.67 units. In the third month, if the NAV goes up to Rs 25, the investor will get Rs 1,000 / Rs 25 i. e. 40 units. Thus, the investor acquires his units for 12 months.
Months Amount NAV Units alloted
1 1000 20 50.00
2 1000 15 66.67
3 1000 25 40.00
4 1000 22 45.45
5 1000 17 58.82
6 1000 19 52.63
7 1000 21 47.62
8 1000 14 71.43
9 1000 26 38.46
10 1000 20 50.00
11 1000 18 55.56
12 1000 21 47.62
Total 624.26
NAV indicates the performance of a particular mutual fund scheme. NAV is the market value of the assets held by the mutual fund scheme.
Also Read: What are the rules of investing?. Don’t miss the 4th rule.
Scheme Selection
An investor buying a Systematic Investment Plan in a mutual fund scheme is buying into a portfolio. A Portfolio of all the AMCs schemes is shared on their website every month. The portfolio consists of 20 to 60 stocks depending on the scheme. Parameters to be considered before selecting schemes that are
- Fund Age
- Scheme Running Expenses
- Regular Income Yield in Portfolio
- Tracking error
Scheme types based on asset allocation
Based on the asset allocation and investment strategy schemes are classified as equity, Debt, and Hybrid Schemes. From the scheme name, we can identify the type of asset allocation.
Large cap: First 100 companies in size of market capitalization.
Mid cap: From 101st to 250th companies in size of market capitalization.
small cap: From the 250th company onwards in size of market capitalization.
Multi cap funds Fund investing in large cap, mid cap , small cap stocks
Large cap funds Fund investing in large cap stocks
Small cap funds Fund investing in small cap stocks
Dividend funds Fund investing in dividend yielding stocks
Index funds Fund investing in stock market index like NSE, BSE.
Balanced hybrid funds 50 -50 balanced investing in equity and debt
