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Systematic Investment Planning
- 2. Sometimes, we can’t invest a lot of money
Why?
Because, we either don’t have it or we simply don’t want to.
But, we still want to invest, because we may foresee ourselves
buying a house after 5 years, or paying for our genius’s education.
Well, what is the option then?
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- 3. Well, Invest a little, off course.
What else?
But Invest regularly.
It is a good practice to instill investing discipline without
burdening ourselves with too much financial liability.
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- 4. Good Idea?
Let’s find options.
There are many options like ….
Well, most such options are fixed income options
Result: Moderate Returns
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- 5. You are happy. Fine.
But, what if you are not?
What if you are interested in aggressive returns
by playing in the equity-share market like everyone else?
Well, if you are an absolute genius investor.
Then it’s all right
because you will know exactly what stock to buy, and how
much to buy, and at what time in the market?
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- 6. What if you are not?
What if you bear the risk of timing the market incorrectly just
like everybody else out there
including financial experts, except may be for a
certain Warren Buffet.
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- 7. Let’s talk about an interesting alternative,
It is not an investment option but rather
a way or a method of investing
It is called
Systematic Investment Planning.
© 2009-2011 Copyright by InvestCare Pvt. Ltd, www.investcare.in
- 8. It is considered as one of the most effective ways
of investing in equity, across the world.
Why?
Because, it ensures better returns by helping us time
our investments perfectly.
How?
There is a simple logic at work. Rupee Cost Averaging.
Well, don’t get fooled by the complicated name.
Give me a minute, and you will exactly understand
how it works?
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- 9. I am sure, we all know that,
It is good to buy in the market when the prices are low.
Why?
Because it costs less
And it is good to sell, or buy less when the prices are high.
If you do that every month, buy more when the prices are low
and sell or buy less when the prices are high. You have got
yourself a good deal.
Well, off course, it is
risky, difficult and time consuming to time the
market every month. In fact, it is almost infeasible.
What do you do then?
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- 10. How about investing a fixed amount every month,
let’s say 3000 Rs. a month and buy as much as you get
If the price is low, let’s say the price is 100 Rs., you end up
buying more which is 3000/100 or 30 units.
And, if the price is high, let’s say, 125 Rs., you automatically
end up buying less which is 3000/125 or 24 units.
This way
you buy less when the price is high and buy more when the
price is low, automatically.
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- 11. Let’s say you kept on investing this way for 5 years, buying
more when the price is low and buying less when the price is
high
Contrast this with another case of a gentlemen who
woke up one fine morning and invested all of his money at
once. Well, he is taking a big risk unlike you by trying to time
the market perfectly.
Which is again fine if he is a genius investor.
The only problem is that he is not and therefore he ends up
with poorer returns.
Heard this story in the past as well? I am sure you have.
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- 12. The risk is real.
Timing the market perfectly is difficult.
Buying at the wrong time is equally likely.
Result: Poor returns
Whereas, with SIP, you never have to take the decision of
timing the market. The logic of Rupee Cost averaging does it for
you.
The only catch is that you must stay invested for a reasonably long
period of time to enjoy good returns, 3 years to say the least.
If you are investing with a short term perspective, you can perhaps
find other better alternatives.
And if you are investing with a long term perspective like
5-7 or 10-12 years then, Systematic Investment Planning is truly, a
great option for you.
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