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How long should be a SIP for?

Just like more sugar makes your tea sweeter, higher the monthly amounts, more likely a large amount of money you will end up saving or creating after a point in time. Usually SIPs are best done with long term in mind and at least 3-5 years horizon.

Generally you would hear SIP in an equity fund only as they are volatile and SIP strategy gives the best results in such funds by cutting down volatility. But interestingly you can SIP in debt funds too if you are the saving and no risk taking type. If you are a moderate risk taker, and want to make more money through equities, SIPs are for you. SIP is a style of investment strategy. If markets are falling, you should increase your SIP amount so as to accumulate more units at lower prices, and when markets are rising, sit tight and enjoy your wealth creation!

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HOW DOES SIP GENERATE RETURNS

SIP works on a concept of Rupee cost Averaging where the one does not keep a track of the market but keeps on purchasing units with equated monthly or quarterly installments whether the market is rising or falling. This ideally works well on long term where there is high market volatility. The returns generated are average of the market high or lows. For clear understanding we have mapped the market on the sensex values from the time of inception of the market. The below Chart shows if anyone has stayed invested for a period of 6 Months, 1 Year, 3 Years, 5 Years, 10 Years what are the chances of negative return and what has been the highest or lowest return. Though the chart would not exactly depict the returns one can derive but can clearly state that with building spread with SIP and a long term investment can generate unparallel returns.

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SENSEX VALUES FROM (1979 TO 2018)

Charting done basis values of sensex taken from website of BSE. Values are from Apr 79 till May 2018.

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HOW DOES IT WORK?

An investor can invest a pre-determined fixed amount in a scheme every month or quarterly, depending on his convenience through our online portal by simply registering & generating the BSE ID or through post-dated cheques or through ECS (auto-debit) facility. Investors need to fill up an Application form and SIP mandate form on which they need to indicate their choice for the SIP date (on which the amount will be invested). Subsequent SIPs will be auto-debited through a standing instruction given or post-dated cheques. We can help complete the formalities & help register the form for SIP. The amount is invested at the closing Net Asset Value (NAV) of the date of realization of the cheque.

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TAXATION IN SYSTEMATIC INVESTMENT PLAN -SIP

The taxation on investments made through SIPs is different for different type of scheme. Many Investors treat this as single investment and miss to understand that though they are investing in one scheme but this is a structured pattern of investment and each installment is considered as a separate investment by itself for taxation purpose. With the recent revision in Budget on Long Term Capital Gain (LTCG) for Equity Mutual Funds, on redeeming the funds post 1 Year of continuous investment, the gains would attract a 10% LTCG Tax. One has to note that each investment made in SIP should have completed one year or else for the amount of investments less than a year Short Term Capital Gain would apply which is 15% on the overall gain made and realized below one year. Similarly, debt mutual funds offer the indexation benefits on LTCG if they are redeemed after three years. Else, for short-term (below three years), the gains are added to your income for that year and charged at the tax rate applicable to your income level. How to choose a Scheme One has to do a carefully selection of scheme form the available schemes in the market. Laying down your goals can define how much one needs to invest to achieve the goal (Set up a Goal & calculate your Investment amount). Choosing a right scheme depends on

1. Tenure of Investment

2. Your Age

3. Amount of investment which can be diversified into different schemes.

4. Risk appetite.

We can help you build a right portfolio. Take your Risk Profile Test and start building your wealth through SIP. Customization in SIP The most popular SIP Format is investing a fixed amount every month but the companies have evolved over years and now investors can customise the way they put money via SIPs. Many fund houses allow investors to invest monthly, bi-monthly and fortnightly, according to their convenience. Apart from this, Step-up SIPs allow investors to increase the SIP amount periodically. ‘Alert SIP’ is another form of the regular systematic investment plan which sends an alert to the investor to buy more when the markets are down. One can choose the end date of the SIP but ideal is to put the option as – Perpetual, which ensures that small amounts will keep on deducting to build a bigger wealth portfolio one day however one can stop the SIP anytime during the term without any penalty or charges.

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key learnings

1. SIP is most ideal for small investors. But it is interesting that most large HNI investors also have SIPs as core part of their investment strategy.

2. SIP can be done in any sort of market, whether bull market or bear market. It is most effective when markets are falling so rather than stopping or slowing, increase your SIP in a falling market.

3. SIPs do not help time market. They help spend more time in market which is the real trick to making BIG money! By the way, a secret.. ..no investment guru can time the market.

4. SIPs are best when they are long term. But if you have shorter term (1-3 year) goals, you can look at SIPping in debt funds too! SIP is basically like a Recurring Deposit, only that it offers much better value!