Friday, August 29, 2008

SIP - Systematic Investment Plans

Second in the series for tools for investments:

Let me start with listing few of the traits:

1) You can not shelve huge amount for savings at once, but can take afford small amount periodically.
2) You have no understanding of equity market.
3) All your savings always lie in bank deposits.
4) You have more or less risk aversion, and want minimal risk.
5) You can stay invested for period of 5 – 10 years.
6) You always seem to be waiting for the “right time” to invest

If you have more or less similar traits, Systemic Investment Plans (SIPs) are appropriate for you. SIPs are just like recurring deposit schemes of the banks. Through SIPs you will be investing in Mutual Funds at regular intervals and can leave the worry about following things:

1) Timing the market. If market is going low, you will be buying at cheaper rates and if market is going up, you are getting returns.
2) Selecting the right mutual fund every time you have lump sum money available with you.
3) You are investing in equity, small amount every month, so cost will be averaging over the period of time. Cost averaging will keep the risks at bay.
4) Avoid panic sales
5) Invest as little as Rs.500 / Rs.1000 per month
6) Becoming a disciplined Investor
7) Taking advantage of Power of Compounding

So, you convinced that SIPs are ideal for you. Next step, decided which mutual fund you want to start with, consider few of the following things:

1) Fund House – performance of various funds of that fund house
2) Fund Manager – look at the performance of various funds managed by him.
3) Track Record of Fund – This will give you the confidence that this product is in market from quite some time and has survived so far implying, chances are that it will survive further also.
4) Investment Portfolio of Fund – My personal preference, when it comes to investing through SIPs is to avoid sectorial funds. Reason, simple, the sector which is hot now may fall in next one year, and SIP is a long term investment. So, I prefer diversified portfolio based funds for SIPs.

There are many sites available where you can get all this information. My favorite is though I also consult before making my call and invest for at least 3 years in any fund and then leave it aside for another 3 – 5 years.

1 comment:

  1. Off Topic - it's been quiet on your front lately...everything okay?