Sips and long term investing

2. Systematic Investment Plans (SIPs) – Averaging out Markets
and Long Term Returns

3. Systematic Investment Plans (SIPs)
SIP is a long term investment method that involves investing a fixed sum of money at
fixed periods of time (Monthly/ Quarterly) in Mutual Funds Scheme at the prevailing
Net Asset Value. (NAV)
Why invest in SIPs?
• Builds Investment Discipline : Creates a habit
of regular savings
• Affordable & Convenient : Allows for early
investments in small amounts
• Helps in compounding your wealth
• Safegurads against market volatality through
Rupee Cost Averaging
• Safeguards against inflation as long term
returns from equity is generally higher than
average inflation rate

4. The Power of Compounding & Rupee Cost Averaging
Illustration 1:
Rs 1,000 invested every month for 30 years would make your investment at Rs.3,60,000.
This amount may not be available with you one time but can be invested through small
amounts over a period of time. Small amounts invested regularly can grow into a substantial
lumpsum.
This illustration shows how the Power of Compounding and Rupee Cost Averaging helps an
amount of Rs.3.6 Lacs invested in small amounts over a longer period of time, grow to Rs 62
lacs and Rs 23 Lacs depending on the annual rate of return of 15% and 10% respectively.
0
10
20
30
40
50
60
70
80
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 30
ValueofInvestmentin(inRs.Lacs)
No. of Years
15% Return 10% Return
62 Lacs
23 Lacs

5. Power of Compounding – Benefits of Starting Early
If you were to invest Rs. 5,000 per month. The table shows returns generated at different rates
when invested at different times in your life. We have assumed that the investment matures at
the age of 60 years. Indicative rates of return of 14% & 12% have been taken for calculation of
returns
Return at 14%
Age Total Investment and Tenure Amount at Maturity
25
Rs. 21,00,000/- (Rs.5000 x 420 months or 35
years) Rs. 4,42,21,463
30
Rs. 18,00,000/- (Rs. 5000 x 360 months or 30
years) Rs. 2,27,48,352
35
Rs. 15,00,000/- (Rs. 5000 x 300 months or 25
years) Rs. 1,15,95,892
Return at 12%
Age Total Investment Amount at Maturity
25
Rs. 21,00,000/- (Rs.5000 x 420 months or 35
years) Rs. 2,72,95,158
30
Rs. 18,00,000/- (Rs. 5000 x 360 months or 30
years) Rs. 1,52,60,066
35
Rs. 15,00,000/- (Rs. 5000 x 300 months or 25
years) Rs. 84,31,033

6. Rupee Cost Averaging – the Advantage
Month Amount NAV Units
1 100 10 10
2 100 9.4 10.64
3 100 10.6 9.43
Total 300 9.98 ** 30.07
**
• The purchase of Mutual Fund units at regular intervals ensures the
averaging out of your investment.
• Regular investments also safeguards against the volatality prevailing in the
markets at that point of time
• Rupee Cost Averaging reduces the average Cost of Purcahse to Rs. 9.98 per
unit.
* The illustrations given are indicative and should not be construed as investment advice

7. Conclusion
• SIPs follow the principle of Averageing your
purchase and Compounding of Returns
• SIPs are longer term investments and have a
tendency of giving positive returns over a
longer period of time
• SIPs focus on consistent and continous
investments – Fixed amount for fixed period
of time to safeguard from market volatality
• SIPs Impart discipline in investing – most
needed quality for a long term wealth
creation
• SIPs are simple & quick – Hassle free
investments with one time instruction
• Law of Averaging at work – Rupee Cost
Averaging at its best
• SIPs make investing more affordable

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