PGIM - SIP

SIP - A Good Habit

 
lief goals with SIPs

Aapne SIP Kiya Kya? Kickstart your life goals with SIPs

Systematic Investment Plan (SIP) works on a simple idea – you invest a fixed sum regularly in a mutual fund for the number of years you need to reach your financial goal. You follow this disciplined approach regardless of the direction of the market movements. With this approach you will end up buying more number of units when the markets are down and less units when the markets are up.

SIPs are a simple tool for long-term savings

 

The structure of SIP is based on a simple and straightforward idea, wherein you invest a fixed sum regularly in a mutual fund regardless of market conditions. So, over the long-term, you end up buying more units when the markets are down and fewer when the markets are up. In this manner, your average price of investing is predictably lower over the long run. When you invest through a SIP, you also leverage the power of compounding and the benefits of rupee cost averaging. Moreover, by investing regularly, you get to keep a check on your emotions and not attempt timing the market.

SIPs are a simple tool for long-term savings
Enjoy the power of compounding with SIPs

Enjoy the power of compounding with SIPs

 

Compounding is the process of allowing the return earned on a sum invested to also generate returns. The base on which returns are being earned keeps increasing, even if additional investments are not made, as the return earned each period forms part of the invested amount for the next period. Compounding works best when the investment period is for a long period of time which gives the investment more opportunities to grow. More frequent the compounding, the better the returns. As an investor, you can benefit from compounding by starting early, investing regularly, and continuing to stay invested, to make the best of your investments.

Early Investing

 

Let us take the example of two friends Jay (28 years) and Ajay (38 years) investing for the long term, to understand how investing early helps.The difference in total investment made by Jay and Ajay was only Rs.6 lakhs. But by starting 10 years early Jay was able to build a financial corpus with a difference of over Rs.42.25 lakhs compared to his friend Ajay.

Jay Ajay
Start investing via monthly SIP at age 28 38
Monthly investment 5000 5000
Expected Returns (CAGR) 8% 8%
Investment till the age of 58 58
Total Investment made over the
tenure (Rs Lakhs)
18 12
Final Corpus (Rs Lakhs) 70.88 28.63

The above is for illustrative purposes only and should not be in any way considered as an indication of returns under any scheme

Benefit of SIPs

1. Build discipline in your investing with SIPs

Build discipline in your investing with SIPs

By investing regularly, you will be disciplined and not attempt to time the market or stop investing when the markets are in a downward phase. This simple approach addresses the biggest challenge faced by investors - stock market volatility. Human behaviour tends to influence investors to stop investing when the markets go down, and in some cases, investors completely exit their investments. Likewise, investors tend to invest more when prices are high. Investing with SIPs enables investors to invest regularly through market highs and lows which is beneficial in the long term since time in the market is more important than attempting to time the market

2. Get the advantage of Rupee-cost averaging

Get the advantage of Rupee-cost averaging

Over the long term, SIPs tend to benefit from rupee cost averaging and the average cost per unit through SIPs is generally lower since regular purchase through highs and lows of the market reduces average cost of investment. As equity markets generally move in the upward direction over the long term, SIPs in equity mutual funds benefit from rupee cost averaging.

3. Smooth out market volatility with SIPs

Smooth out market volatility with SIPs

It is impossible to predict stock market movements, which is why it is important to invest regularly in a disciplined manner towards your financial goals. Historical stock market data indicates that over long periods, volatility smoothens out, which makes systematic investing effective. If you are concerned about volatility, you should know that it is volatility in equity markets that helps build long-term returns since it provides the opportunity to invest in markets through highs and lows. Suppose there is no volatility and markets move only in an upward direction, it will mean that each SIP instalment will buy in lesser units as the NAV of the fund will only go up. Market corrections or dips in market gives opportunity to SIP investors to buy more units. Thereby averaging the price of your purchase in the fund over time.

4. Focus on Financial Goals with SIPs

Start small with SIPs

Instead of focusing only on market returns, you will be wise to systematically and regularly invest towards your financial goals. When you invest towards a financial goal, you can calculate the monthly SIPs you need to invest in suitable funds to reach your goal. This approach will keep a check on your emotions and also cultivate the habit of regular investments over market cycles. When you face market volatility, especially when the markets keep sliding downwards, treat the situation as something like a sale. Just as you buy more during a festive sale, you could use the falling markets as an opportunity to invest more. Unlike stock market movements, your financial goals pretty much remain the same and that is what you should aim to invest for without overtly getting worried about stock market volatility. For instance, the task to accumulate Rs.50 lakh, 15 years from now may seem daunting. But, if one were to assume 10% annual return on investment and 5% inflation; one has to set aside about Rs.25,000 each month to reach this goal. Effectively, the further the goal is in future; the lesser the sum you need to set aside each month to invest via SIPs.

5. Start small with SIPs

Start small with SIPs

An inherent advantage of investing through SIPs - you can start with small investments and scale up your SIPs over time. You also automate your investments, which reduces the chance of you delaying your investments. You can also start a SIP with a minimum amount or as low as Rs.1000 per month in a fund of your choice. Choose your SIP date, frequency and then choose between different modes of payment such as Electronic Clearing Service (ECS), Direct Debit, Post-Dates Cheques (PDCs) or National Automated Clearing House (NACH). You can enrol for a SIP online or by submitting duly completed SIP Enrolment Form at any Official Point of Acceptance (OPA) of the Fund House.

6. SIPs are flexible

Top-up SIP means increasing your investments periodically with increase in your income. Let's see how this works.

  • Sandeep, aged 35, has estimated that his retirement corpus required to maintain a similar lifestyle is approx. Rs 7 crores.
  • Through a normal SIP program, It will take monthly investment of approx. Rs 76,500 to accumulate this corpus, which is a deterrent for him, as he doesn't have such a high disposable income.
  • The solution is to start a SIP program with annual SIP Top-up.
  • A top-up 10% per annum will reduce the monthly investment required today to Rs 28,000. This can be financed through rising income every year making it convenient for Sandeep.
Approx monthly SIP required to accumulate Rs 7 crs, for next 25 years
Expected returns Monthely SIP
(with top-up)
Monthely SIP
(without top-up)
6% 34600 103000
8% 28000 76500
10% 22500 56300
12% 17800 41100
14% 13900 29800
16% 10700 21600

The above is for illustrative purposes only and should not be in any way considered as an indication of returns under any scheme. Rounded off to the nearest hundred

Financial Goals

Have a list of dreams and goals that you want to fulfil?

So what are you waiting for? Kickstart your financial goals.. Use these SIP Calculators to help you plan for your goal

FAQs on SIP:

Are SIPs better than one-time investing?

It is advisable to invest via the SIP route, particularly when investing in equity. SIP offers the benefit of rupee cost averaging. This ensures that you get more units when the markets fall and less units when it rises, thereby averaging the cost per unit of your investment. In fact, SIP eliminates the risk of timing the market and smoothens out the falls and peaks so that your investment can benefit from volatile markets.

How much should the SIP amount be?

The SIP amount should reflect your goals. Minimum investment amount to start a SIP may vary between Fund Houses.

What should be the ideal SIP date every month?

You can start a SIP on any day of the month.

How long should I continue my SIP?

Start a SIP with a financial goal in mind like buying a car or higher education of your child. The time to fulfil your financial goal should be the tenure of your SIP.

How do I start a SIP?

It’s easy to start a SIP online following a few simple steps, start by visiting the website of the Fund House. Register a new account and select the fund you want to start a SIP in. Then, all you need to do is fulfil your KYC requirements online and create a debit mandate with your bank. You can also take the offline route by visiting any branch of the fund house.

Can I make changes in SIP later?

You can change the date of debit and frequency, modify the SIP amount, and also pause or stop your SIP.

Which fund do I start a SIP in?

Where you invest depends on your risk profile, investment horizon, and expected returns. If you are risk averse, debt funds may be appropriate for you. If you can manage more risk and have a long-term investment horizon, equity funds may be appropriate for you.

What should I do if my fund is giving negative returns?

Markets regularly move up and down. Every time the market falls, your SIP buys more units. In case of negative returns, the loss you see is only notional, i.e., it will be real if you decide to sell off your holdings. Hence, it is prudent for investors to continue with their investment plans. Benefits of a SIP are seen over the long term when you keep investing regularly over different market cycles. Continuing to invest when markets are down gives you a better chance to enhance returns when the market recovers.

How can I achieve my goals using SIP?

Decide your financial goal and the amount of money you need to achieve it. Then use a SIP calculator to find out the amount you will need to invest regularly to meet your financial goal. It’s simple.