What Are the Alternatives to SIP Schemes?

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:

• Exchange Traded Fund Definition
• What is an Exchange Traded Fund?
• What are the First Steps to Invest in the Indian Stock Market?
• Index Funds of Top 10 Mutual Funds

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.

What Is the Risk of Investing in SIP?

Actual Question:

What is that I am risking if I would be investing in SIP for more than 40 years? Supposedly I have been investing 10K for more than 40 years will I get a considerable return from SIP , How much is the percentage of risk in SIP?

Answer:

‘Systematic Investment Plan (SIP)’ is indeed a safe investment. However, SIP is not product or a mutual fund unit by itself but merely refers to a habitual monthly investment. Through SIP you may invest in a mutual fund or an exchange traded fund (ETF) or directly in stocks.

Therefore, when you want to invest Rs.10000 every month for 40 years, which is indeed commendable, you must know in what kind of product you must invest in. For example, if keep investing for 40 years in income or debt fund, while the principal may be safe you will not be a rich and wealthy person after 40 years. Besides your good resolve, you need to play smart too!

Please invest in a well diversified index mutual fund through the medium of SIP. Here is what you can be worth after 33 years of active investments and keeping the investments alive for another 20 years.

Related Links:

• What is the Minimum SIP Subscription Amount and Best SIP?

• What Is The Difference Between Dividend and Growth Fund. Which Is Better?

• Is SIP Safe To Invest?

• Which One is Better: Recurring Deposit in Bank or SIP in Mutual Funds?

• What is the Minimum SIP Subscription Amount and Best SIP?

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.

Meaning

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). 

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.