Thursday, August 25, 2016

What is the Minimum SIP Subscription Amount and Best SIP?

Which are the best SIP to invest in India?

I am looking for currently the best SIP plans in India. Also what will be the least amount I can invest in a SIP?

All ‘Systematic Investment Plans (SIPs)’ are equally good or equally bad. Do not be confused by claims of performance or returns. Evaluating the returns based on the ‘Net Asset Value’ or ‘NAV’ is totally absurd, because the evaluating method is purely based on the market price of the underlying shares on a particular date. This system of calculating returns purely based on market price is against the principles of ‘ValueInvesting’. Please read the article “How Do You Calculate Return On SIPs Factoring in All the Operational Costs?”.
So how to choose the right mutual fund that is offering the SIP?
  1. Size of Sponsor: In Real investing we are talking about timeframes of not three to five years but 50 years! So the sponsor of the SIP must be a large and reputed organisation that can be expected to be around, without going bankrupt, for the next 50 years. UTI, SBI, HDFC are a few examples of such sponsoring organisations.
  2. Diversified Index Funds: Please do not get carried away by fancy sectoral funds like ‘Pharma’, ‘Auto’ etcetera, and go for a scheme proposing to invest the funds in a diversified, index fund, for example BSE S&P 500 index fund.
  3. Fund Management Charges: Kindly pay attention to the charges levied for fund management. There are charges like ‘Entry Load’, ‘Exit Load’ and ‘Annual Fund Management Fee’. These usually range from 1–3%.which are exorbitant, considering that after about 30 years your investment would have grown to a few crore (10 million is 1 crore) rupees. They should be minimum. So among the short listed funds based on above two criteria, choose the scheme that charges lowest fees.
Own SIP of ETFs:
Let me give you an exciting alternative to a SIP offering by a mutual fund in the form of ‘Your Own SIP of ETFs’. An ‘Exchange Traded Fund’ or ‘ETF’ is kind of mutual fund, which reflects a popular index like ‘BSE Sensex’, 'NIFTY 50′ and ‘NIFTY Junior’. An ETF has following two great advantages:
  1. Units are traded on stock exchanges like BSE and NSE.
  2. Are listed alongside individual scrips and can be purchased similarly on online trading platforms of stock brokers.
  3. Most importantly the annual fund management charges are usually very low and stand below 0.50% per annum. This is going to help in maximising your wealth in a big way when we are talking of 50 years and crores of rupees of your wealth at the last decades, generated out of your humble SIP investments.
  4. When you create a SIP of ETF voluntarily from your own side there is no sword hanging on your head. You can vary subscription amount as you wish. But in order to choose this path you must be a highly disciplined person. Many a times freedom leads to laziness and noncompliance.
Finally coming to your question what is the minimum amount, I hear that it can be as low as Rs.50 a month (UTI Retirement Benefit Pension Fund}. I believe ICICI Prudential also offers a SIP of Rs.50. But for your own wealth creation benefit it has to be a meaningful sum. I would recommend a bare minimum of Rs.500 per month and ideally a minimum of Rs.3000 to 5000 a month.
Finally, the last and crucial golden rule of SIP, which no one emphasises is that a SIP shall be kept alive uninterrupted for very, very long time periods like 50 years. Only then the ‘Miracle of Compounding’ will have an opportunity for work for you and make you a rich and wealthy individual irrespective of which financial class you presently fall in.
Every person, including the one from the most humble background and means, can become a ‘Crorepati’ or a ‘Millionaire’ through long term systematic investment plan. I am committed to make this dream come true globally.

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