Showing posts with label systematic investment plan. Show all posts
Showing posts with label systematic investment plan. Show all posts

Friday, June 16, 2017

Is Daily SIP Superior to Monthly SIP?

tuning fork-calander-waves

Actual Question

Is a daily SIP of Rs. 2,000 in a mutual fund a better idea than a monthly SIP of Rs. 60,000?

Dear Friend!

You have asked a very interesting question.

The key concept behind a systematic investment plan (SIP) is to even out the price fluctuations. Since timing the market is extremely difficult, wise people had devised to achieve the next best thing, the ‘Dollar Cost Averaging (DCA)’ through SIP.

Now the focus shifts to your question regarding whether it is ideal to achieve DCA by investing daily or monthly.

Of course, it goes without saying that as the frequency of investing increases better averaging is achieved.

If this is so, why once a day?

Why not every hour?

So it is all about the question of reasonableness.

One has to strike a balance between the improvement in results and the time and effort involved in making investments. Obviously there is an opportunity cost involved for the time and efforts expended!

And finally in real investing, where we are talking about long times of two to three decades, it really is not going to make much difference whether you are investing through SIP on a daily basis or monthly basis.

To conclude in the real world of true value investing monthly SIP is adequate and one need not take the trouble of investing daily to achieve better dollar cost averaging.

Related Articles:

Thank you,

With Best Regards,


Wednesday, December 28, 2016

What Are the Alternatives to SIP Schemes?

Man walks to invest every month with discipline
Man walks to invest every month with discipline
SIP is not any particular mutual fund scheme. It is only a disciplined investment process. SIP stands for systematic investment plan. Of course it is easy to subscribe to a mutual fund scheme offered as SIP but it need not necessarily be that way. If you subscribe to a recurring deposit with a bank with monthly deposits, that too qualifies to be called a SIP!

As far as the alternatives are concerned, they are as follows:

  1. Every month purchase exchange traded funds - there are many types including funds that track popular indices like NIFTY - such investments are simple and do not require any special knowledge.
  2. Learn value investing and start investing in excellent stocks yourself. To invest yourself read the book “ The Intelligent Investor” by Benjamin Graham.

Suggested Further Reading:

In conclusion, SIP is a disciplined investing at periodic intervals, usually every month. Investments can be in any financial securities or instruments or schemes including mutual funds offered as SIPs.

Wednesday, August 31, 2016

Everything You Need to Know About Wealth Creation Through Systematic Investment Plan (SIP)

Successful investing does not require an extraordinary IQ; it simply requires immense measures of discipline. The ‘Systematic Investment Plan’ or ‘SIP’ is the regimen through which the value investor builds the character, which is one of the vital ingredients for triumph in investing.

SIP is a regimen, not a financial instrument like a share or bond.  Mutual funds have created so much of hype and publicity around the term ‘SIP” that it has acquired a unique status and existence, that many people think that it is an investible financial instrument. SIP is a contract or commitment with a mutual fund to subscribe or invest a certain sum of money in a particular scheme or fund. For example I can decide to invest Rs.1000 every month in HDFC’s equity fund styled, ‘HDFC Top 200 Fund’.  There are many types of funds or schemes like equity or growth funds, debt or income funds and so on but our present topic does not permit us to delve into it and so lets leave for a separate article.

A systematic investment plan need not necessarily be about investing with a mutual fund. If you are able to invest a certain sum every month in shares or bonds or exchange-traded funds regularly with discipline, this is also a SIP.

Frequency of investment
SIP requires a periodic investments but technically the period could be any reasonable time interval such as a month, quarter or six months. However in practice, usually it is very month, which is quite reasonable and convenient.

Minimum investment amount
The minimum investment amount needs to be decided by the investor based on ones financial goals. To create a significant wealth over a period of about 40 years or 480 months (Ideally one should start investing at 20 years of age and enjoy the fruits at 60) the amount should be appropriate. In m they opinion about Rs.10000 to 20000 should be invested every month.

Following graphic depicts the net wealth created for various investment amounts, after taking into account inflation at 10% per annum, which is very high and an expected return of 15% per annum, which is quite reasonable:

As for the minimum investment amount from the perspective of making SIP affordable, funds have brought it down drastically in India. I hear that it can be as low as Rs.50 a month (UTI Retirement Benefit Pension Fund}. I am told that ICICI Prudential also offers a SIP of Rs.50.

Duration of SIP Investment
Finally, the last and crucial golden rule of SIP, which none emphasizes is that a SIP shall be kept alive uninterrupted for very, very long time periods like 40 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.

Such lengthy period of investment also bring the benefits of ‘Dollar Cost Averaging’.

To conclude, every individual, including the one from the most humble background and means, can become a ‘Crorepati’ or a ‘Millionaire’ through disciplined and long-term ‘Systematic Investment Plans (SIPs). 

Friday, August 12, 2016

Is there a Special Benefit in Being Invested For a Long Time in a Debt Fund?

A very important and useful question, indeed.
In the case of investment in a debt fund is concerned there is no special advantage in being invested for a very long time because in debt fund the interest is paid out and there is no reinvestment and no scope for capital appreciation. One will get the interest as long as one holds the investment. The quantum of returns depend on the prevailing interest rates in the market.
On the contrary, in the case of an ‘Equity Fund’, the prices of the shares that are constituents of the fund will increase many folds in the long run on the back of two important factors as follows:
  1. Natural growth of revenues and profits of the companies in an environment of general prosperity.
  2. Operation of the law of ‘Miracle of Compounding’ propounded by Albert Einstein, in favour of the investor and consequent wealth creation in the long term.
To conclude, there is no special benefit in remaining invested in a debt fund for a long time. However, long time is the most essential ingredient of wealth creation in the case of an equity fund.

Note: This is a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.