What is an SIP?

Systematic Investment Plan.

Say every month, you commit to investing, say, Rs 2,000 in your fund. At the end of a year, you would have invested Rs 24,000 in your fund.

Let's say the NAV on the day you invest in the first month is Rs 20; you will get 100 units.

The next month, the NAV is Rs 25. You will get 80 units.

The following month, the NAV is Rs 18. You will get 111.02 units.

So, after three months, you would have 291.02 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.

How often does one have to invest?

• Most funds give you an option of Monthly, quarterly and option of once in 6 months.

• They also give fixed dates. So you will get the option of various dates and you will have to choose one. Let's say you are presented with these dates: 1, 10, 20 or 30. You can pick any one date.

• If you pick the 10th of the month, then on that day, the amount you have decided to invest in the fund has to be credited to your mutual fund.

How must the payment be made?

• You can opt for the Electronic Clearance Service from your bank; this means the mutual fund will, as per your instructions, debit a certain amount from your account every month.

• Let's say you have a SIP of Rs 1,000 every month and you have chosen to invest in it on the 10th of every month. Under this option, you can instruct your mutual fund to directly debit your bank account of Rs 1,000 on the due date.

• If you don't have the required money in your account, then for that month, no units will be allocated to you. But, if this continues periodically, the mutual fund will discontinue the SIP. You need to check with each mutual fund what their parameters are.

• Alternately, you can give cheques to your mutual fund. In this case, they may ask for five Post Dated Cheques upfront with your first investment.

• Since these cheques are dated ahead of time, they cannot be processed till the date indicated.

Reliance Growth SIP

Jan 1996 to Jan 2014 Reliance Growth PPF/FD/Gold
SIP per month 1000 1000
No. of months 217 217
Amount Invested 217000 2170000
Total valuation as on Jan 2014 2819656 540221
Weg. CAGR 24.46% 9%
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