At a time where the mutual fund industry, is facing tough time in garnering AUMs (Average Assets Under Management), as distributor no more find it lucrative enough to sell mutual funds (since commissions provided by the mutual fund houses are miniscule); mutual fund houses are now making smart moves in order to garner more AUMs through the SIP (Systematic Investment Plan) route in order to sustain their asset management business.

 

Many leading fund houses such as Reliance Mutual Fund, UTI, Birla Sun Life, Tata, DSP Blackrock, AIG, Fidelity and Religare have now signed up with the National Stock Exchange to sell Systematic Investment Plans (SIPs) on their (NSE’s) online platform in order to make investing in mutual funds simpler, faster and without your distributor being involved in the transaction.

 

Such a move of launching “online SIPs” will be the game changer for the MF industry, which is suffering the pain of the entry load ban.

 

Hence now, if you are an investor in any of the small towns of India you too now can invest in this wonderful investment avenue for long-term wealth creation by opting for the “online SIP” mode of investing. It would also do away, with the horrendous experiences which you may have faced while routing your transactions through your distributor.

 

Moreover, you’ll overcome the paper work and procedural issues as while transacting in mutual funds through the online model, one will simply need to:

 

• Open a trading account with a stock exchange member broker
• Open a demat account with a stock exchange member broker, or with a bank
• Sign an ECS mandate form with the stock exchange member broker, mentioning the SIP amount along with the date(s) of your SIP purchase (which can be daily, monthly, quarterly or half yearly)

 

Hence, transacting under the online SIP model would now be a seamless affair, and you would be relieved from the hassles of maintaining physical account statements, as the number of units bought and sold, will be reflecting in the demat account.

 

So in our opinion one should take a SIP, if one wants to multiply wealth over the long-term. Mind you we aren’t promoting this for any vested interest. We want you as investors to take benefit of the following advantages which SIP have to offer:

 

1. Light on the wallet: Instead of feeling the pinch of investing a lump sum amount at one go, SIPs enable you to invest smaller amounts at regular intervals (daily, monthly or quarterly) thereby also attempting to infuse regular saving habits in you.
   
   So, if you cannot invest 5,000 in one shot, that’s not a huge stumbling block, you can simply take the SIP route and trigger the mutual fund investment with as low as 250 per month. And if you want to manage the volatility of the equity markets on daily basis you can start daily SIP as well.


2. Makes market timing irrelevant: If market lows (as experienced during the turmoil of 2008 and early 2009), gave you the jitters and made you feel that you had never invested in equities, then SIPs would have been of help. Timing the markets, apart from requiring a full time attention also requires expertise in understanding economic cycles and market scenarios, which you may or may not possess.
   
   Thus the best way to overcome all the above problems can be solved through a SIP in a mutual fund with a steady track record, as the SIP route enables you to even-out the volatility of the equity markets effectively.


3. Power of compounding: As SIPs subscribe you to the habit of investing regularly, it enables you to compound your money invested. So, say you start a SIP of 1,000, in a mutual fund scheme following prudent investment system and processes, with a SIP tenure of 20 years and expect a modest return of 15% p.a., your money would grow to approximately 1.55 crore.
     Your every bit of savings makes you richer
   

   (Source: ACE MF, PersonalFN Research)

   
   The above illustration reveals the early bird gets the worm. So, the earlier you start a SIP, the more you will benefit from the power of compounding as the tenure you have to achieve your financial goal is longer.


4. Rupee cost averaging: In order for you to absorb the shocks of the volatile equity markets well, SIP works better as opposed to one-time investing. This is because of rupee-cost averaging.
   
   Under rupee-cost averaging, an investor typically buys more of a mutual fund unit when prices are low and similarly buys fewer mutual units when prices are high. This infuses good discipline since it forces you to commit cash at market lows, when other investors around you are wary and exiting the market. It also enables you to lower the average cost of your investments.
     Provides cushion against market volatility
   

   (Source: ACE MF, PersonalFN Research)

   
   So if you were to invest through the SIP route while the Sensex fell from 21,000 to 8,000 (during the the global economic turmoil of 2008 and early 2009) your average cost of investments would have been very low and hence when the market rose again, your gains would have increased substantially, and moreover you would have managed the volatility of equity markets well.
   
   Remember opting for SIP, is a tool to long-term wealth creation.

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crossovertrust@spreydon.org.nz Jan 19, 2012 Insights like this liven things up around here.

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