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SIP: growing popularity among investors

SIP helps to contains cost and, to an extent, insulates the investor against risk, giving him somewhat better returns as well, reports Arun Kumar.

business Updated: Apr 09, 2007 23:40 IST
Arun Kumar

With volatile swings becoming a part of life on the Indian stock markets, the systematic investment plan (SIP) is growing increasingly popular with investors. It helps to contains cost and, to an extent, insulates the investor against risk, giving him somewhat better returns as well. Indeed, in the last five years, SIP has given an annualized return of more than 40 per cent.

As the awareness of SIP among investors grows , the number of those opting for it is multiplying every month.The data available shows the industry is adding one lakh SIP accounts every month for the past year, with an average size of Rs 3500 per application. Even a year ago, only around 10,000 SIP accounts were being added each month, with an average investment Rs 500-1000.

There are currently more than 12 lakh SIP accounts with an estimated inflow of around Rs 300 to Rs 400 crore a month. The total assets under management of SIP is around 3 per cent of the industry size. Fund houses like DSP Merrill Lynch, Reliance, Franklin Templeton, HDFC, Fidelity and Prudential ICICI all attract a substantial number of SIP applications every month.

With the entry level coming down to Rs 100 per month, even investors of very modest means can join. Reliance Mutual Fund has launched SIP with minimum amount of Rs 100 per month. In case the India growth story continues and the GDP keeps growing at 8 per cent, the annualized return from SIP will be much better than from any fixed instruments like bank deposits or post office savings, said the chief investment officer of a leading mutual fund.

Besides, equity linked instruments are also tax-free after one year. The effective rates will be even better.


What is SIP?

Systematic Investment Plan is a facility where one invests a fixed sum of money on a regular basis into a mutual fund scheme for a fixed period. This sum can be as low as Rs.100 per month.

What are the benefits?

It is disciplined investment, and helps in reducing the average cost of investment. Since it is long-term investment plan, it helps in catching the bullish phase of the market. In a situation like bearish market, when normal investors exit from the market, under SIP the investors continue to invest therefore it help in reducing the cost as investors end up buying at lower net asset value.

Month Amount invested NAV Number of units
1 1000 10 100
2 1000 9 111.11
3 1000 10 100
4 1000 11 90.9

Total Investment = Rs 4,000,
No of Units Purchased = 402.01
Therefore, Average cost per unit = Rs 9.95

What is the frequency under SIP?

One can opt to invest on a monthly basis or on a quarterly basis and the payment can be made through Electronic Clearing Service (ECS) or direct debit facility or through post dated cheques.
Scheme Total Amount Invested Present Value Yield (%)
Reliance Growth 60000 235,969.45 58.54
Reliance Vision 60000 186,829.41 47.83
Franklin India Prima Fund 60000 177,824.19 45.61
Franklin India Prima Plus 60000 176,128.00 45.18
Kotak 30 60000 175,039.67 44.90
HDFC Capital Builder Fund 60000 166,541.09 42.69
HDFC Growth Fund 60000 165,643.22 42.45
Prudential ICICI Growth Plan 60000 157,739.41 40.29