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Saturday, 24 August 2013

SYSTEMATIC INVESTMENT PLANS EXPLAINED

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                        All   Investors around the world have one common goal in them and that is without losing money, money should grow and one way is to invest through SYSTEMATIC INVESTMENT PLANS (SIP).

How does it work?

                         Mutual funds nowadays offer SIP on their different schemes you can buy there NAV. And there is no fixed amount that you have to invest you can decide on your capital allocation and invest in them either monthly or quarterly.

Cost Effectiveness & Acquisition Price

                         When you buy a NAV of 10 Rs with an  investment of 1000 RS  you get 100 Units in the first month ,and in the second month  the price of NAV goes up by 11 Rs with the same investment amount  of 1000 RS you get 90 units ,then your Acquisition price  is at 10.5 for 190 units  and in the following month  NAV price goes down to 9 RS then on your investment  of 1000 RS you get 111 units .So by the end of third month your holding 301 units at a acquisition price 9.95 on your investment of 3000 RS.

                           Imagine without the SIPs if you had invested   3000 Rs in the first month itself then you would have got 300 units at 10 Rs and in the fourth month if the price is at 10 Rs then your investment is the same after 3 months, but when you compare it with SIPs then your investment stands at 3010 Rs with all the volatility your money has grown.

Emotional Connect

                                In SIP you’re in a state of mind that you have to invest a certain portion of the capital into SIP at regular intervals and this meant to reduce volatility, better acquisition price, Increase in Units of NAV and you don’t have to monitor it on day to day basis.   Whereas if you are investing directly in stock markets to invest lot of time to keep track of changing situations  then it starts affecting your decision making abilities which leads  you to wrong decisions.


                                                                 
                                              SYSTEMATIC INVESTMENT PLANS EXPLAINED


             What SIP does is actually cultivates a habit of saving money every month and this discipline is a must for a person who is planning to grow his money over the years.

Tax Savings

                            There are plans which give you exemption from Tax which you can deduct in your tax-fillings.

Diversification

                      If you have decided to invest a size able amount of money every month then don’t simply invest all the money into a single SIP plan, rather invest in different  sip plans which are based on different themes this will actually help in having a balanced  portfolio.

Compound interest

              Compound interest is where you invest small amounts of money where you get interest which is again clubbed with next installment you gain interest and over the period of time if you notice then your returns are mind boggling, in SIP  it is the same but here rate of return will act as interest.

SIP in Stock market

                     Mutual Funds invest directly into stock market and you purchase thereby   reducing your risk exposure but, if have a high risk taking capability then you have to identify a good stocks from a leading Index and invest a small portion of money in a individual stock this will acts as a sip but you have to treat it like a sip, and it to be invested keeping in mind 2 or 3 year time horizon.


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