Systematic Investment Plan (SIP)-Smarter way to meet your financial goals

Systematic Investment Plan (SIPs)
RR Investors Retail Services (P) Ltd. www.rrfinance.com

• I don’t have enough money to invest
• I’m too busy making money to worry
about managing it.
• I don’t have the time or expertise to
follow market movements and make
investments at the right time
SIP is an investment program that allows you to contribute a fixed amount (as
low as Rs. 1000/-) in mutual funds at regular intervals.

You must have heard this statement more than n
times now that …
“SIP is the best investment style”
So let’s understand why SIP has emerged as
the most powerful style of investing in
recent times through
Some real life examples….

There are basically three points that makes
SIP such a strong concept
• Rupee Cost Averaging
• Power of Compounding
• Market timing irrelevance
Let us simplify these terms in next few slides…

Rupee Cost Averaging
To understand this concept more practically look at the illustration below. The
SIP investor finishes with an investment that is worth more than the lump sum
investor after six months - even though the starting price and finishing price are
exactly the same. Unlikely but it is true. Check the figures yourself ….This is the
first thing what SIP does; it averages the buying cost automatically.
Month Unit Price Amount Invested Units Bought Amount Invested Units Bought
1 20 60000 3000 10000 500
2 18 -- -- 10000 556
3 14 -- -- 10000 714
4 22 -- -- 10000 455
5 26 -- -- 10000 385
6 20 -- -- 10000 500
Average price paid
Total units bought
THE POWER OF RUPEE COST AVERAGING
Lum-Sum Investor Regular Investor
Total Amount Invested Rs 60000 Rs 60000
Value of investment after six
months
Rs 60000 Rs 62018
20 19
3000 3109

Power of Compounding
 This mathematical formula of compounding : FV = PV (1 + r) is known to all of us but is
seldom understood in terms of investing. Let’s use an i.e.: If you invested Rs. 100000 PV (Present
Value) in a instrument that grows @ 15% per year (the r) for a period of 25 years (the n), its
FV (Future Value) will become Rs.3291895. Unbelievingly the amount multiplied to a whopping 33
times
 Now the let’s see how the same compounding plays in a SIP over a period of time. The table below
justifies all statements of the Power of Compounding. A meager amount of Rs. 1000 per month over
25 years at an annualized growth rate of 15% accumulates to a humongous number of approx Rs. 33
lakhs

Market timing is irrelevant
Data Source : Bloomberg
Let’s look at the above analysis in the next slide whether it actually happens …

Time in the market matters
VS not timing
*CAGR (Compound Annual Growth Rate) -The year-over-year growth rate of an
investment over a specified period of time

Now that we have seen the Power of SIP; let’s try to
address this point …
“When SIP works best for us”
Few slides from hereon will explain this more clearly….

SIP will work best if following acts are done:
• Start Early
• Invest Regularly
• Invest for Long Term
• Invest in the Right Asset Class

Invest Regularly

Invest for Long Term
• Lower the risk
• Greater the effect of compounding
• More predictable average returns
Hence longer your SIP
Period

Invest in the Right Asset Class
Undoubtedly Equity is the winner overtime…

Now that we have seen why and how SIP can best work - a
question still remains unanswered ….
Can SIP help individuals like you and me
in real life situation to meet our
financial goals ?
Let’s try to answer this question through a simple case study and see
whether benefits of SIP really work …

Case Study – Real Life Situation
• Assume –
– You are 30 yrs of age; have a wife and kid
– Current Annual expenditure of Rs. 5,00,000
– Retirement expected at age 60 yrs
• More –
– Average prices (i.e. inflation) will rise by 7% pa
– After 30 yrs when you retire, the low risk rate of return will be 6% pa
(Considering you put all your accumulated corpus post retirement in a
bank deposit)
– You will live for more 20 years post retirement
So let’s see what will be the corpus required at the time of your retirement to maintain the
same current lifestyle additionally with enhanced medical expenses

Current Expenditure Rs.5,00,000 p.a.
Inflated at 7% p.a. for 30 years
Expenditure at the time of
Retirement Rs. 36,00,000 p.a.
Income to be generated post
Retirement Rs. 36,00,000 p.a.
Corpus Required at the
time of Retirement
Your first reaction
Impossible! It cannot
be achieved.
But then there is a
solution…
Therefore to generate this income
every year post retirement you
need to accumulate a corpus
R R Investors Retail Services (P) Ltd. www.rrfinance.com

So what’s the Solution… Just one simple thing
Subscribe for an SIP of Rs.15,000 per month in a good
diversified equity fund for 30 years and forget it
You still don’t believe it that it can be that simple; let us validate our
conviction with actual returns generated in a equity fund over the
years
From the table it is crystal clear that if an investor did an SIP of Rs.15000 per month in
Equity Fund for 15 years, he would have invested 27 lacs and that would have grown to
a whopping number of 3.4 crore as on date; in spite of so many pitfalls in equity markets
in last 15 years.
Equity Fund
SIP Investments 15 year SIP 10 year SIP 5 year SIP 3 year SIP
Total Amount Invested @ Rs.15000 per month ( Rs.) 2,700,000 1,800,000 900,000 540,000
Market Value as on July 29, 2011 (Rs.) 34,379,093 8,682,024 1,427,405 798,522
Returns (Annualized)*(%) 29.87% 29.64% 18.56% 27.29%
Benchmark Returns (Annualized)(%)# 15.87% 18.42% 8.36% 14.08%
Market Value of SIP in Benchmark# 9,967,057 4,737,423 1,110,339 664,982

Still need to think; No pressure but see this
what the delay can cost in the same case
study
10152530
Time to
Retirement (yrs)
9,60,0005,76,0002,32,0001,80,000Annual
80,00048,00021,00015,000Monthly
Investment Required
Current Age : 30 years Retirement Age : 60 years
Retirement Corpus to be accumulated : 8 cr.
Assumed Rate of Return on Investment : 15% p.a.
With every passing year the time to
retirement is reducing and increasing
the burden of investment required. Now
the choice is our whether we want
TO START NOW OR STILL WAIT..
Today After 5 years
from now
After 20 years
from now
After 15 years
from now

Thank You
RR Investors Retail Services Pvt. Ltd.
Email: rrinvestor@rrfcl.com
Toll Free: 1800110444
Telephone: 011-23636363/2
Website: www.rrfinance.com

Systematic Investment Plan (SIP)-Smarter way to meet your financial goals

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Systematic Investment Plan (SIP)-Smarter way to meet your financial goals