Every mutual fund has a goal - either growing its assets (capital gains) and/or generating income (dividends) for its investors. Distributions in the form of capital gains (short-term and long-term) and dividends may be passed on (paid) to shareholders as income or reinvested to purchase more shares. For tax purposes, keep track of your distributions and cost basis of purchased/reinvested shares. Like any business, mutual funds have risks and costs associated with returns. As a shareholder, the risks of a fund and the expenses associated with fund's operation directly impact your return. Returns As an investor, you want to know the fund's return-its track record over a specified period of time. So what exactly is "return?" A mutual fund's return is the rate of increase or decrease in its value over a specific period of time usually expressed in the following increments: one, three, five, and ten year, year to date, and since the inception of the fund. Since return is a common measure of performance, you can use it to evaluate and compare mutual funds within the same fund category. Generally expressed as an annualized percentage rate, return is calculated assuming that all distributions from the fund are reinvested. Since average returns can sometimes "hide" short-term highs and lows, you should evaluate returns for a time period of several years-not just one year or less. A fund that has a high return in one year may have experienced losses in other years-these fluctuations may not be apparent in its average return. While a fund's return shows its track record, keep in mind that past performance is no guarantee of future results. When using returns to compare funds, always use net returns. Net returns are the true returns of both load and no-load funds after deducting all costs and expenses. Daily SIP vs Monthly SIP - Which is Better? Bharti AXA was the first to start Daily SIP in its Funds. Inspired by its success a few more funds like IDFC, Shara joined the bandwagon. And now L&T Mutual Fund is the latest to offer Daily SIP (DIP as they call it). But the question remains, is daily SIP better than good old Monthly SIP Plans? Theoretically it seems Daily SIP would better capture market volatility and so should outperform Monthly SIP. But does this hold? My analysis says NO - You can read the details here - http://www.finwinonline.com/2010/02/...ds- better.html. Other than this its also unaffordable for majority of investors. How? The minimum amount required is around Rs 300 per business day (Bharti AXA) which makes it Rs 6000 per month. Now how many investors put that kind of money in a single fund per month? Not many. Moreover I feel its a nuisance, operationally. When you sell your investments and look into your SIP statements to ascertain your capital gains, you will notice daily entries since you had invested every day. Statements run into pages and it complicates for no real reason. The only way you can use Daily SIP is if you are someone who earns daily and hence want to invest daily or you want to split and invest lump sum amount in to daily installments over a relatively short time frame. Let me know what you think of Daily SIP vs Monthly SIP or if you have a different opinion Daily or monthly discipline? Anil Rego / July 25, 2010, 0:32 IST Over a full market cycle, monthly SIPs fare better. However, they lose out to daily SIPs in a falling market. A regular investment habit brings in discipline among investors and wealth is created with long-term planning. The best way of creating wealth over a period of time is through the systematic investment plan (SIP). Click here to visit SME Buzz Also Read News Related Stories Now - Over-diversification doesn't help - Hold few funds, avoid clutter - Goals: Know time-frame, cash need - No relation between fund performance and inflows: Report - Don't fret too soon - Zero trail commission for transferred MF accounts SIP is ideal for investors who have a regular income and want to stay away from the market volatility. It makes you invest a fixed amount regularly. When the market is high, you buy fewer units and at a lower level, you get more units. Rupee cost averaging and compounding are the added benefits you get here. Apart from the monthly SIP, there is another variant called daily SIP – a boon for investors with a low risk appetite. What is a daily SIP? It enables you to divert a small sum of money on a daily basis. Daily SIPs are expected to minimise risk and generate greater risk-adjusted returns while increasing participation. The working of this scheme is similar to that of monthly SIP, wherein the units will be allocated on the basis of net asset value (NAV). You can choose the amount and period of investment as convenient to your pocket. This will automatically be debited from your account on every working day for the investment period stipulated. The installment amount can be as low as Rs 10 a day. And the scheme can be terminated any time, with an advance notice and without any extra cost. Currently, L&T Mutual Fund, Bharti AXA Investment Managers, Sahara Mutual Fund and IDFC Mutual Fund offer this facility. Monthly versus daily SIP: Let’s understand this by way of an example assuming two scenarios. Scenario 1: Assuming two different styles of investment by Shalini and Sonal over a period of three years that began in January 2008. Shalini started a monthly SIP in Nifty with a contribution of Rs 5,000. On the other hand, Sonal started investing in Nifty on a daily basis, which amounted to Rs 244 a day. If we look at both their investment benefits till May 2010,Shalini benefitted more. Reason: during this period, the markets went through a full cycle. As evident, in a longer period, monthly SIPs provide good averaging. Scenario 1 Monthly Daily SIP SIP Total units 42.10 41.98 Avg cost price (Rs) 4,487 4,495 Closing price (Rs) 5,086 5,086 Investment (Rs) 1,80,000 1,80,000 Value (Rs) 2,14,157 2,13,531 Returns (%) 18.98 18.63 Scenario 2: Now let us analyse their benefit in the period when the stock market fell steeply – January to December 2008. The investment for this period was Rs 60,000. Scenario 2 Monthly SIP (Rs) Daily SIP (Rs) Total units 14.17 14.56 Avg cost price (Rs) 4,455 4,339 Closing price (Rs) 5,086 5,086 Investment (Rs) 60,000 60,000 Value (Rs) 72,060 74,073 Returns (%) 20.10 23.46 During this period, Sonal scored better than Shalini. Reason: daily SIPs have a way with a volatile market, more so on the downtrend. It may not be as effective in an uptrend or in a range-bound market. Deeper the market dips, the better is your holding averaged with daily SIPs. A daily SIP needs a little more monitoring than a monthly one. A daily SIP would score better when a large part of your investment comes is made in a rapidly falling market. A monthly investment may not be best suited for cost averaging.However, over a full market cycle, it could end up being as fruitful as your daily SIP, if not better. For someone looking at a three-five year period, it is ideal to stick to a monthly SIP. This could be considerably less taxing in terms of monitoring and on your pocket as well. For an investment horizon of less than that, preferably six months to one year, daily SIP can be a good choice. Word of caution: The negative about this product is the transaction load – fund management fee and auto debit from your bank account. One should avail this investment arrangement only after carefully evaluating these aspects. The writer is CEO, Right Horizons Systematic Investment Plan (SIP) – The dark side! I personally am a great fan of Systematic Investment Plan (SIP) in Mutual Funds and have posted several articles on the same. Also known as Rupee cost Averaging (in India) or Dollar cost Averaging (in US) it’s no doubt a well known strategy to create serious wealth in long term. But I have not found many sites talking about the disadvantages or the flip side of SIP. So here is a post to make you aware of the disadvantages of using SIP and suggest if there is a way out? Systematic Investment Plan (SIP) Disadvantages SIP returns are lower in consistently rising markets: Imagine this situation – Its New Year eve of 2009 and your rich uncle is here and impressed by you & your cousin hospitality gifts both of you Rs 1 Lac. You both being financially prudent want to grow this windfall. You approach a financial planner and as every good planner would, he recommend you to invest in NIFTY BeeS using SIP. So you follow him and plan investment in 12 monthly SIP installments while your cousin puts his entire money as lump sum investment in the same NIFTY BeeS. Who do you think made more money by 2010 New Year eve? Your cousin would have around Rs 1.72 Lac while you would have Rs. 1.37 Lac. So your cousin gained 25% more just by doing lump sum. Lesson Learned: SIP is a good way to invest but occasional lump sum investment when the markets are highly undervalued adds to your gains. Limited options of dates: For a SIP in Mutual Fund you need to decide a date in advance when you like to do your SIP and give an ECS mandate for the same. Most of the MFs have limited option (mainly 1st, 5th, 7th, 10th, 15th, etc). So you tend to invest in multiple mutual funds on the same date. You want to lessen your risk by spreading your SIP in the entire month by choosing different dates for different funds. Way out: For funds having an online option you can do SIP yourself but without emotions coming into play or second option is do SIP with fundsindia.com that provide SIP on all dates. You can read more about the same here. Fixed Amount: There are times when you feel that markets are undervalued and you want to invest more but then in SIP only a predetermined fixed sum gets invested. Same is the case when you want to invest less, you can’t do it. Way out: Try VIP (Value Averaging Investment Plan). I would write about it soon. Stopping intermediate payment: It may so happen that you got an emergency or have a major expense this month and so you don’t want to invest. But with SIP this is not possible; if there’s money in your bank it will get debited and invested. The only way out is to cancel the SIP which can be a nightmare if you have a lot of SIPs and also when you want to start again you need to go through all the formalities to start the SIP. Also for cancellation you need to inform 2 weeks in advance and even then you may not be sure that SIP would not be debited. Lot of delay between actual application & start/stop of SIP: I feel this is very irritating and you may miss one monthly installment; MF houses need at least a month to start a SIP and around two weeks to stop your SIP. I think its the time they should try and comeup with quicker processing of SIPs. Does not suit people with unpredictable cash flows: Think of someone who doesn’t have a predictable cash flow like a self-employed professional. He won’t be able to do SIP as he would be unable to commit a fixed sum every month. To Conclude: Even though SIP suffers from these disadvantages but it still seems to be one of the Best investment option available to a long term investor. It particularly suits First-time investors in equity and those who do not have a lumpsum or the time to track their investments. The salaried class should also opt for SIPs since it becomes a good savings habit. Investors who do not wish to be stressed by market volatility should adopt the rupee-cost averaging method for secured long-term investment planning. POSTED BY AMIT AT 11:11 PM LABELS: MUTUAL FUNDS, RUPEE COST AVERAGING, SIP, SYSTEMATIC INVESTMENT PLAN 2 COMMENTS: Thinking lot.... said... yes Value Averaging Investment is really in improved version of SIP... check out how http://2bnamed.blogspot.com/2010/02/value-averaging-investment-vip- improved.html M A R CH 1 4, 2 0 1 0 1 1 :2 7 P M Amit said... So have you started using VIP in your investments? M A R CH 1 5 , 2 0 1 0 1 :0 2 A M POST A COMMENT Newer Post Older Post Home Subscribe to: Post Comments (Atom) Recent Posts Must Read Understanding ULIPs Income Tax Calculator for FY 2010-11 Should you opt for Daily SIP for Mutual Funds? Best Tax Saving (ELSS) funds to invest in 2010 SIP - The dark Side! Comparision of Term Life Insurance Premium Which is the Best Demat Account? How to invest in Mutual Funds? Invest Less and save more Taxes! How to use Dividend Reinvestment option in ELSS to your benefit? Income Tax - Common Rules & Regulations Upfront or Construction Linked Payment for your Dream Home? Six Commenly Used Financial Calculators H ow do you avoid or minimise the effects of an extremely volatile stock market? Given the choice between the asset classes, and the yo-yoing of almost every fund, do you dare to invest in it at all? What if there was a middle path? The Systematic Investment Plan is ideal for investors who have a regular flow of money (such as employees). A simple instruction to the fund house and the bank will help them invest regularly at a given time and stay away from the volatility of the stock market. When you invest a fixed amount, such as Rs 5,000 a month, you buy fewer units when the share prices are high and more units when the share prices are low. The reinvention of the Systematic Investment Plan (SIP) has been a boon for investors with a low-risk appetite. Rupee cost averaging and compounding are added advantages. But what exactly is a Daily SIP? And how does it benefit you, the customer? So what is Daily SIP? Simply, a Daily SIP collects a small sum from an individual on a daily basis and invests it in the market. It operates like any mutual fund, where the disbursement and handling of the money is the fund manager's prerogative. Rupee cost averaging occurs when the market goes down, and more units of the scheme can be purchased because of a lower net asset value. However, most companies have SIP schemes that allow you to invest on different dates of the month. Daily SIPs are expected to minimise risk and generate greater risk-adjusted returns while increasing participation. Daily SIPs: Advantages Affordability, volatility and convenience are the most obvious advantages of investing in a Daily SIP. With a Daily SIP, your investment is staggered. Instead of a lump-sum amount, you invest a pre-specified amount in a scheme at pre-specified intervals at the then prevailing NAV (Net Asset Value). Consistent monetary contributions average out the crests and troughs of any market, in the long term. It also captures the daily levels of market volatility. In case of a monthly SIP, you still can lose out if the markets are up on the chosen day of the month. The daily SIP, however, eliminates this flaw and lets you benefit out of equity market volatility. If you're looking at a lump-sum investment, then going in for a daily SIP would allow you to take advantage of the market volatility, by splitting the lump sum amount in to daily instalments over a relatively short time frame. The Daily SIP is ideal for small time savers, since the threshold investment level is low. Once you start with a Daily SIP, you invest at the appointed time and that makes you a disciplined investor. With Daily SIPs, you capitalise on the periodic dips in the market and accumulate a greater number of units at lower levels -- and over time, reduce your average unit cost. You avoid the lure and trap of trying to predict the market. A word of caution Usually, a fund charges 2.25 per cent of invested amount as the 'entry load'. However, in some cases this amount may get reduced. You should also keep in mind the contribution after taking into account the cash flows available. Check if there are any incremental transaction charges attached to each investment. Especially in the case of auto- debit, there may be a fee for every transaction. You need to remain invested in a Daily SIP for at least 3 years to reap the benefits, and monitoring this on a daily basis can be annoying. If you should fail to pay the SIP amount on any particular working day, your investment will not default but your return will be adjusted against the failure of payment for that day. BankBazaar.com EDITION: IN Register Sign In Search New s & Quotes Login or register Latest from My Topics ARTICLE MORE REUTERS RESULTS FOR: "mba finance project on daily sip vs monthly sip" Silver or Gold? Should you invest in gold or silver? What are the parameters one should consider before investing. Read to know more. Full Article MOST POPULAR MOST SHARED 1. Emerging debt crises hold lessons, warnings for Greece 23 Apr 2011 2. Torres on target as Chelsea keep up the pressure 11:16am IST 3. Spiritual guru Sri Sathya Sai Baba dies 1:24pm IST 4. 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Learn More Understanding 'Systematic Investment Plan' Tweet this Share this Link this Digg Email Print Related News Rakesh Jhunjhunwala bats for A2Z; buys up shares from open market Wed, Dec 29 2010 Myths and truths about pre-approved loans Wed, Dec 29 2010 What every retail investor must review about 2010 Tue, Dec 28 2010 StanChart PE close to fully exiting M&M Fin Services Fri, Dec 24 2010 Poor debut season: A2Z lists below issue price Fri, Dec 24 2010 Related Topics Personal Finance » PICTURES Faces of the 2G scam The men caught up in India's huge 2G spectrum corruption scandal. Slideshow Photo Focus: Intangible Celebrity style: Reese Witherspoon Revolutionary Cuba The Royal guest list By BankBazaar.com Tue Jan 4, 2011 6:20pm IST Systematic investment plan is a method which allows investors to invest in a mutual fund a certain amount of money over a period. For example, investors can invest Rs 5000 in a mutual fund every month. ADVANTAGE OF SIP Systematic investment plan has many advantages over one time investment. Some of the advantages are mentioned below. PRICE AVERAGING SIP allows you to average the price over long period so that the impact of changing prices of mutual fund is minimized. You can buy more units when the prices drop and buy less when the prices move up. The advantage is that you do not have to worry about price movement. DISCIPLINE SIP instills in you a sense of discipline towards investment and savings. LOW BASE REQUIREMENT You can start SIP with a much lower investment. Many banks and financial institutions allow investment via SIP as low as Rs 500 a month. HOW TO PROCEED WITH SIP You can ask your bank to allow a mutual fund of your choice debit a certain amount towards investment every month. You have to specify the amount, date of the month when money will be invested, and duration of SIP. For example, if you choose to invest Rs 3000, 10th of every month, for 3 years, the mutual fund will keep debiting Rs. 3000 from your account towards investment in the fund for 36 months. You can also follow this on your own by investing Rs. 3000 every month. However you need to be very disciplined with your budget to achieve this. VARIANTS OF SIP: DAILY, MONTHLY Daily SIP scheme requires investors to invest daily while monthly SIP allows investors to invest monthly. At first glance, daily SIP seems to take care of volatility better than monthly SIP, but there is no empirical evidence that has shown significant difference in returns. KEY ASPECTS 1. Daily SIP is not allowed by many mutual funds and hence your options are limited. Monthly SIP options are available in almost all mutual funds. 2. The most important aspect is to do with our habits. We are used to planning for a month. It is more convenient for us to see income, investment, and expenses in a monthly timeframe and hence we can plan better towards a monthly SIP. 3. The final aspect is calculation of taxes. Daily SIP makes tax calculation more complex as you have to evaluate the capital gain by comparing the selling price with everyday price for the last 1 year. Copyright 2010 BankBazaar.com. All rights reserved. This tool/content is provided by BankBazaar.com and not by Reuters. The content may not be copied, broadcast, downloaded and stored (in any medium), transmitted, adapted or changed in any way whatsoever without the prior written permission of BankBazaar.com. BankBazaar.com is an online marketplace where you can instantly get the lowest loan rates, compare and apply online for your personal loan (click here), home loan (click here), car loan (click here), credit card (click here) from India's leading banks and NBFCs. 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Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here. Systematic Investment Plan (SIP) HDFC MF SIP is similar to a Recurring Deposit. Every month on a specified date an amount you choose is invested in a mutual fund scheme of your choice. The dates currently available for SIPs are the 1st, 5th, 10th, 15th, 20th and the 25th of a month. You’ll be amazed to learn about the many benefits of investing through HDFC MF SIP. Benefit 1 Become A Disciplined Invester Being disciplined - It’s the key to investing success. With the HDFC MF Systematic Investment Plan you commit an amount of your choice (minimum of Rs. 500 and in multiples of Rs. 100 thereof*) to be invested every month in one of our schemes. Think of each SIP payment as laying a brick. One by one, you’ll see them transform into a building. You’ll see your investments accrue month after month. It’s as simple as giving at least 6 postdated monthly cheques to us for a fixed amount in a scheme of your choice. It’s the perfect solution for irregular investors. *Minimum amounts may differ for each Scheme. Please refer to SIP Enrolment Form for details. Benefit 2 Reach Your Financial Goal Imagine you want to buy a car a year from now, but you don’t know where the down-payment will come from. HDFC MF SIP is a perfect tool for people who have a specific, future financial requirement. By investing an amount of your choice every month, you can plan for and meet financial goals, like funds for a child’s education, a marriage in the family or a comfortable postretirement life. The table below illustrates how a little every month can go a long way. Monthly Savings - What your savings may generate Savings per month Total amount invested Rate of return (for 15 years) (Rs. in Lacs) 6.0% 8.0% 10.0% (rupees in lacs, 15 years later)* 5000 9.0 14.6 17.4 20.9 4000 7.2 11.7 13.9 16.7 3000 5.4 8.8 10.4 12.5 2000 3.6 5.8 7.0 8.3 1000 1.8 2.9 3.5 4.2 *Monthly instalments, compounded monthly, for a 15-year period. Disclaimer: The illustration above is merely indicative in nature and should not be construed as investment advice. It does not in any manner imply or suggest performance of any HDFC Mutual Fund Scheme(s). Please read Risk Factors. Benefit 3 Take Advantage of Rupee Cost Averaging Most investors want to buy stocks when the prices are low and sell them when prices are high. But timing the market is timeconsuming and risky. A more successful investment strategy is to adopt the method called Rupee Cost Averaging. To illustrate this we’ll compare investing the identical amounts through a SIP and in one lump sum. Imagine Suresh invests Rs. 1000 every month in an equity mutual fund scheme starting in January. His friend, Rajesh, invests Rs. 12000 in one lump sum in the same scheme. The following table illustrate how their respective investments would have performed from Jan to Dec: Suresh’s Investment Rajesh’s Investment Month NAV Amount Units Amount Units Jan-04 9.345 1000 107.0091 12000 1284.1091 Feb-04 9.399 1000 106.3943 Mar-04 8.123 1000 123.1072 Apr-04 8.750 1000 114.2857 May-04 8.012 1000 124.8128 Jun-04 8.925 1000 112.0448 Jul-04 9.102 1000 109.8660 Aug-04 8.310 1000 120.3369 Sep-04 7.568 1000 132.1353 Oct-04 6.462 1000 154.7509 Nov-04 6.931 1000 144.2793 Dec-04 7.600 1000 131.5789 *NAV as on the 10th every month. These are assumed NAVs in a volatile market Disclaimer: The illustration above is merely indicative in nature and should not be construed as investment advice. It does not in any manner imply or suggest performance of any HDFC Mutual Fund Scheme(s). Rupee Cost Averaging neither ensures you profits nor protects you from making a loss in declining markets. Pleaseread Risk Factors. As seen in the table, by investing through SIP, you end up buying more units when the price is low and fewer units when the price is high. However, over a period of time these market fluctuations are generally averaged. And the average cost of your investment is often reduced. At the end of the 12 months, Suresh has more units than Rajesh, even though they invested the same amount. That’s because the average cost of Suresh’s units is much lower than that of Rajesh. Rajesh made only one investment and that too when the per-unit price was high. Suresh’s average unit price = 12000/1480.6012 = Rs. 8.105 Rajesh’s average unit price = Rs. 9.345 Benefit 4 Grow Your Investment With Compounded Benefits It is far better to invest a small amount of money regularly, rather than save up to make one large investment. This is because while you are saving the lump sum, your savings may not earn much interest. With HDFC MF SIP, each amount you invest grows through compounding benefits as well. That is, the interest earned on your investment also earns interest. The following example illustrates this. Imagine Neha is 20 years old when she starts working. Every month she saves and invests Rs. 5,000 till she is 25 years old. The total investment made by her over 5 years is Rs. 3 lakhs.Arjun also starts working when he is 20 years old. But he doesn’t invest monthly. He gets a large bonus of Rs. 3 lakhs at 25 and decides to invest the entire amount. Both of them decide not to withdraw these investments till they turn 50. At 50, Neha’s Investments have grown to Rs. 46,68,273* whereas Arjun’s investments have grown to Rs. 36,17,084*. Neha’s small contributions to a SIP and her decision to start investing earlier than Arjun have made her wealthier by over Rs. 10 lakhs. *Figures based on 10% p.a. interest compounded monthly. Disclaimer: TheThe illustration above is merely indicative in nature and should not be construed as investment advice. It does not in any manner imply or suggest performance of any HDFC Mutual Fund Scheme(s). Please read Risk Factors. Benefit 5 Do All This Effortlessly Investing with HDFC MF SIP is easy. Simply give us post-dated cheques or opt for an Auto Debit from your bank account for an amount of your choice (minimum of Rs. 500 and in multiples of Rs. 100 thereof*) and we’ll invest the money every month in a fund of your choice. The plans are completely flexible. You can invest for a minimum of six months, or for as long as you want. You can also decide to invest quarterly and will need to invest for a minimum of two quarters. All you have to do after that is sit back and watch your investments accumulate. Please refer to the SIP Enrolment Form for terms and conditions before enrolment. *Minimum amounts may differ for each Scheme.
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