SIP: Start early, Save

regularly

[4]

down to `10 (in March, the NAV is `20; in April, it’s `18; in May, it’s `17, and so on). In that case, you are able to buy more number of units at lower costs. So, the aver-age cost of units acquired over the period is lower as compared to, say, buying units at one go through a lump sum investment into the mu-tual fund scheme*. If the market goes up, the NAV will also go up so, and you can earn better returns.

SIP and dIScIPlIned aPProachOne of the major advantages of SIP is that it helps one in becoming a disciplined investor, as a fixed sum is deducted from the investor’s bank account each month in accordance

with the mandate given. Therefore, one need not fill out the applica-tion and sign a cheque every time one has to make an investment. Also, investors can start SIPs with amounts as little as `500.

Better returnSThe SIP format of investing incul-cates discipline in the investor, as he or she consistently invests a fixed sum of money at regular intervals. Through SIP, one can stay invested over the longer term, where ups and downs of the stockmarket would get averaged out, thereby offering better returns. Therefore, SIP pro-motes the culture of investing by giving better returns and by allow-ing the investor to invest bit by bit

an investor education andawareness initiative From hdFc mutual Fund

DISCLAIMERMUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,

READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.As part of its Investor Education and Awareness Initiative, HDFC Mutual Fund has sponsored this supplement on Systematic Investment Plans (SIP) in Mutual Funds. The contents, views, opinions and recommendations in

this supplement and the computations of the calculator are those of the Publication and they do not necessarily state or reflect the views of HDFC Mutual Fund/ HDFC Asset Management Company Limited (HDFC AMC). HDFC Mutual Fund / HDFC AMC has not verified the contents of this supplement nor do they accept any

liability arising out of use of this information.

* SIP does not assure a profit or guarantee protection against a loss in a declining market.

[2] [3]an investor education and

awareness initiative From hdFc mutual Fund

SyStematIc InveStment Plan

What IS an SIP?A systematic investment plan (SIP) is a way of investing in mutual funds (MFs) in which one invests a fixed amount every month on a pre-specified date. Almost all mutu-al fund schemes provide the facility of SIP. This is a good investing op-tion for a first-time investor who is trying to bring discipline into his or her investing process.

hoW It WorkS?Mutual funds provide an option of choosing an SIP either on a month-ly or a quarterly mode on a specific date. Where one opts for a monthly SIP, one can do it by signing 12 post-dated cheques of equal amounts. Another option is to authorise your bank to debit the amount by filling the electronic clearing service (ECS) form. If one gives an ECS mandate,

the bank will automatically debit the specific amount every month on a specific date available with the scheme, from your bank account.

BenefItS of StartIng early The early birds always have an ad-vantage over those who are off the blocks late. They manage to save a decent pile for their requirements with much less fuss. Usually, people at young age undermine the importance of saving small sums of money and keep procrastinating, pushing the start to a later date.

Besides, they often perceive invest-ing as a cumbersome process. This is where SIP comes in handy, A good way to save through MFs is to set aside a certain amount of one’s income for them. This, besides help-ing one make ‘forced savings’, also gives one a financial headstart.

PoWer of comPoundIng The rule of the thumb is to invest regularly and keep reinvesting the returns. Compounding is a simple concept that offers astounding re-turns in the long run. With simple interest, you earn interest only on the principal whereas with com-pounding, you earn interest on the principal and additionally on the

interest. In other words, it’s a way of making your money work hard-er for you. Let’s consider what the power of compounding does to an SIP of `500 a month in a scheme

that offers a conservative 12 per cent return, over 30 years. The to-tal investment of `1.80 lakh (prin-cipal) grows to `15.26 lakh over that period.

hoW SIP helPS In rIdIng market volatIlItyAn SIP is a regular investment plan available on all kinds of mutual fund schemes, though it works best with equity schemes. SIPs help the investor make profit from stock-market volatility by automatically buying more units when prices are falling and fewer units when prices are rising, thus lowering the aver-age purchase price.

hoW SIP helPS In ruPee coSt averagIngWhen one invests through SIPs, he or she buys into the fund at dif-ferent net asset values (NAVs). For instance, when the market is ris-ing, the same investment fetches the investor less units at a higher NAV and when the market is down, the investment buys more units at a lower NAV. Over long periods of time, investors average out their investments as they accumulate more in a bear market and less in a bull market. Let’s suppose you were to start an SIP in a fund in January at the prevailing NAV of `20 for six months. Now, the market goes down for six months and the NAV comes