Monday, 30 November 2009

A Glimpse Of SIP

What is an SIP?

SIP means Systematic Investment Plan. This is one of the more effective investment strategy for accumulating wealth in a disciplined manner over a long period. A specific amount will be invested for a chosen period at regular intervals.

For example, if an investor wants to invest Rs 12000 and makes a one-time investment at an NAV of Rs 15, 800 (12,000/15) units will be allotted.

In the case of an SIP, the investor distributes Rs 12,000 over a year and invests Rs 1,000 every month. The amount will be invested at different levels of NAV, as market conditions and level of indices keep changing on a day-to-day basis. The investment in 12 installments will get averaged at different NAVs in an automatic manner without the investor timing the entry point.

Is it a unique approach to deploy savings?
Systematic Investment Plan is not a unique approach in deploying savings. It is similar to a regular savings scheme like a recurring deposit with a bank where we can put small amounts at periodic intervals. Investing in a mutual fund through SIP allows participation in the equity markets systematically.

Why is investing in a systematic manner appropriate for most investors?
One-time investment is better only when there is a high degree of certainty that the market is going to go through a rising trend. Markets are volatile and predicting is very difficult; timing works only when exit and entry are in an investor's favor. If an investor invests a bulk amount on a day and the market declines, the investor may panic and withdraw the amount leading to a sizeable loss. Also for most investors, one-time investment may not be feasible due to a lack of resources. In the case of systematic investment, it is not necessary for the investor to accumulate a huge amount at one go before making an investment. He can accumulate small amounts and invest regularly. An SIP also enables investors to start investing in equity early.

What are the main advantages of SIP as an investment tool?
Power of compounding, rupee cost averaging, and the option of investing small amounts regularly

How does an SIP work under different market conditions and over time?

When investing through SIP it is not necessary to time the market. Investments will be made systematically every month or quarter depending on the option. Since the investment amount will be uniform, units accumulated during a bearish market, will be more compared to the units in a bullish market.

To build a corpus over the long term requires an investor to stay focused, invest regularly and maintain discipline in the investment pattern. An amount as low as Rs 250 can be set aside every month. This will not affect the disposable income of the individual as well. Investing through the SIP mode ensures investing in all phases of the market. The investor will accumulate more units during a bearish phase and a lesser number of units in a bullish phase. This investor enjoys the benefit of rupee cost averaging under this method.

What is timing the market?
Timing of the market is an attempt to predict the market movements using fundamental and technical analysis. The basic concept in investing is buy low-sell high. Most of the investors who try to time the market tend to do exactly the opposite.

What are the benefits of starting an SIP early? Why?
Investments are generally postponed. However, longer you leave the money invested, the faster it will grow. The investment starts to earn returns and these returns again start to earn money. Compounding being the tool that generally makes a small sum grow to large amount.

What is the power of compounding?
Compounding is the fact that the money you make off an investment can be reinvested to make even more money than your initial investment. The money you make goes back to work to make you even more money than before.

Sound confusing? It's actually pretty simple.

Say you've invested Rs.10, 000 and it makes 10% interest per year. In the first year, you make Rs.1, 000 in interest. But in the second year, you'll make Rs.1, 100 (not only does your initial investment of Rs.10,000 accrue interest but so does the additional Rs.1,000 you made in the first year). In the tenth year, you'll make Rs. 2,358. And in the 30th year you'll make Rs.15, 864. That's all without making another investment beyond your initial Rs.10, 000. In 30 years, the power of compounding gets you from making Rs.1, 000 per year to making Rs.15, 864 per year

What is Rupee cost averaging?
One main benefit of investing through the SIP route is rupee cost averaging. When investment is done at regular intervals, units will accumulate at different market levels. When an equal sum is invested every month, the amount will get averaged based on the different NAV's

Date NAV Amount invested Units
7-Aug-2008 15 1000 67
7-Sep-2008 13 1000 77

The average rate at which the investment is made is at Rs 14. Hence units get accumulated at different market levels.

If the NAV during the end September is Rs 17, the value of Rs 2000 investment will be worth Rs 2448. If a person had considered bulk investing and invests Rs 2000 on August 7, the investment will be worth only Rs 226

Does it help to time the SIP period?
The right time to start the SIP is now. The longer the SIP period, greater is the average annual returns. More over the percentage of positive and negative returns will decline considerably as the SIP tenure will cover all phases of the market. Even if the SIP is chosen for a shorter period, it is always advisable to renew it, once the tenure is over.

If an investor has a lump-sum and wishes to do an SIP, what is the optimal way?
Even if an investor has a lump-sum amount, an optimal way of investing, is to put the amount in Sundaram BNP Paribas Liquid Plus or Sundaram BNP Paribas Money Fund which are liquid funds and allow switching to any of the equity funds for SIP. This ensures that the investment enjoys rupee cost averaging and at the same time earns a higher rate of return when compared to investments in savings accounts.

What is the minimum amount and tenure for investing through SIP?
SIP can be done in monthly or quarterly installments. Minimum amount for investing through SIP is Rs. 250 in the case of monthly installments and Rs. 750 for Quarterly installments for open end Equity and Fixed Income Schemes of Sundaram BNP Paribas Mutual Fund

1. Sundaram BNP Paribas Growth Fund
2. Sundaram BNP Paribas Tax Saver
3. Sundaram BNP Paribas Select Focus
4. Sundaram BNP Paribas Select Midcap
5. Sundaram BNP Paribas India Leadership Fund
6. Sundaram BNP Paribas S.M.I.L.E Fund
7. Sundaram BNP Paribas CAPEX Opportunities Fund
8. Sundaram BNP Paribas Rural India Fund
9. Sundaram BNP Paribas Balanced Fund
10. Sundaram BNP Paribas Monthly Income Plan
11. Sundaram BNP Paribas Bond Saver
12. Sundaram BNP Paribas Floating Rate Fund � Short Term Plan
13. Sundaram BNP Paribas Global Advantage Fund

For Entertainment Opp. Regular and Financial Services Opp. Regular, Minimum amount is Rs. 250/- for Monthly option and Rs. 750/- for Quarterly option.

Minimum number of instructions (including the first cheque) should be 6 for Monthly Option and 4 for Quarterly option taking into account that the total aggregate of such cheques & payment instructions is not be less than Rs. 5,000/-

Is SIP available for all the categories? Equity / Fixed Income / Liquid?
Investment through the SIP route can be done only in the case of equity and fixed income funds. For liquid funds only bulk investment is possible

Can I redeem the money before the tenure?
With the exception of ELSS (Equity Linked Savings Scheme) funds or tax-saving funds, which have a lock-in period of three years, investment in other funds can be redeemed before the tenure. All SIP installments in ELSS funds have a three year lock-in period.

If I redeem the amount in between, will the SIP stop with immediate effect or it will continue till the specified period mentioned?
Redemption of the amount during the SIP period will not amount to stop of SIP. SIP will continue unless the investor specifically requests to stop the SIP

Will I be charged an entry load every month?

Entry load on funds will differ from fund houses. If there is entry load, then the same will be applicable for each SIP transaction. There will be no entry load for direct applications received by the asset management company or collection centres/investor service centres that are not routed through any distributor/agent/broker.

No entry and exit load will be applicable on dividend reinvestment and for bonus units.

Can I choose any dates in the month for SIP?
There are specific dates for investment. In the case of Sundaram BNP Paribas funds the SIP dates are�1, 7, 14, 20, & 25. Investor can opt only any one of the dates for investment. In this case, every month during the SIP tenure, the investor will be allotted units based on the NAV on that particular date. In case it is a holiday, units will be allotted on the next working day.

Can I opt for ECS?
SIP can be done either by giving post dated cheques or through the ECS facility.

If the investor opts for the first option, it is necessary to give post dated cheques for the period he wants to invest.

In case of the second option the investor has to fill in the 9 digit MICR number in the application form along with specimen copy of cheque. This number will be tallied with the MICR master database. If it matches, ECS facility will be activated and monthly investment will be made through the ECS option, along with a cheque for the 1st installment that would necessarily accompany the SIP application

What is the time gap between giving the first cheque and subsequent cheques?
30 days

Should the monthly installment be of same amount?
SIP monthly installments for the tenure and the first cheque should be given for the same amount.

Can I switch the amount to another scheme before the tenure? Will the SIP continue in the old scheme or new scheme?
Switch from one fund to another can be done by giving a switch request and clearly indicating the SIP instructions. If it is clear, the switch will be activated and the investment will be made according to the instructions, else, the SIP will continue in the old scheme. Incase of SIP through Post Dated Cheques (PDCs), a new application and fresh cheques in favour of the new scheme have to be submitted. The old PDCs would be returned to the investor.

Will the units allotted to me differ every month?
Units allotted will be equal to (Amount invested / Applicable NAV). The Applicable NAV is the NAV on the day, when the investment will be made. Thus, the units allotted will differ depending on the applicable NAV during different months.

If the SIP date during a particular month is a holiday, units will be allotted at the applicable NAV on the subsequent working day

If I start an SIP in the dividend option of a scheme, will I get dividends even before the tenure completes?
First condition for the dividend to be credited into the account is that the record date of the dividend and units should be available on the record date, declared by the fund should be during the SIP tenure of the investor.

If in the application form the investor has opted for Dividend Reinvestment, the dividend amount will be directly invested in the fund and units will get accumulated to the investor. If the investor opts for Dividend Payout, the dividend amount will either be credited in the account of the investor or will be sent as cheques depending on the option chosen

What is the procedure if my cheque bounces or I don't have balance in my account at the time of clearing? Will my SIP still continue for the next month?
If the cheque bounces, the units allotted would be reversed. The SIP will continue. However if there are three recurring instances of cheque bounce then the SIP registration would be discontinued.

Will I get any communication on the cheque bounce? Should I give another cheque?
We will send the Not In Good Order policy letter along with Banker's memo through courier / Registered post. A duplicate cheque will not be accepted against the bounced cheque.

Will I get the transaction confirmation either through email or sms every month?
We will send a transaction confirmation through email.

Can I do online transaction for SIP? If so, Should I do it month on month?
This facility is not available currently

Can I reduce the tenure / amount of SIP in between? If I have opted for 20 years SIP and suddenly in the 15th year of investment, I don't want to continue for the next 5 years, can I stop it immediately?
Yes, it is possible. If investor wishes to reduce the amount / period or increase the amount / period, we would require a Fresh SIP Auto Debit form to be submitted. The same should mention "CHANGE OF SIP AMOUNT / PERIOD�. The fresh instructions would have to be submitted 30 days before the next auto debit date

Can I give third party PDCs for investing in my name?
YES. We will accept third party PDC's & third party ECS

Is KYC required, if my investment touches Rs.50000/- during the SIP tenure?
Not Necessary.

Can I have different dates for SIP in same scheme? For Ex: If I am investing Rs.2000/- in a scheme on the 7th of each month for 20 years, suddenly I wish to start another SIP for Rs. 3000 in the same scheme for 20 years. My first investment SIP clears on 7th of every month, can I opt for 20th of the same month for my second investment?
Yes, it is possible, If investor reduce the amount / change of SIP date or Increase the amount / change of Year, we need the Fresh SIP Auto Debit form and should be mention "CHANGE OF SIP AMOUNT / PERIOD "

Can I pledge these units in the bank before the tenure completes?

Can I claim tax rebate if I put an SIP in an ELSS schemes? If the lock in period is for 3 years, can I redeem the entire amount invested in the first year after the lock in period or every month SIP will be locked for 3 years?
Tax rebate is applicable for ELSS scheme.� Every SIP transaction is locked for 3 years.

Many fund houses are coming up with SIPs & insurance, is it as similar as ULIPs?
Sundaram BNP Paribas has not yet launched SIP with Insurance.

If I invest through a distributor and subsequently change my investment to direct, will there be any impact on my investment? Will I be charged an entry load for the future�installments also?

We need written request for change of Broker Code to DIRECT. As per investor request, we will change the Broker code as DIRECT.� Only after the request letter is received by the AMC future transactions would be processed without Entry Load.

If I have not provided my nominee or my bank account details and suddenly during the SIP tenure, if I die, what is the status of my investment?
Legal Heir is owner of this investment.

Can I opt for daily SIP? Or only monthly intervals allowed?
At present we allow only monthly and quarterly intervals

Will I get monthly reminders before my SIP date?
Monthly reminder before SIP will not be given to the investor. However, the investor would be getting a reminder for renewal, one month before the close of the SIP tenure

Once my SIP tenure completes, will I be given an option to renew or should I again begin the procedure as fresh investment?
Renewal option is available. Any extension of an existing SIP will be treated as a new SIP based on the date of receipt of such a renewal application. Terms and conditions applicable will be as on the date of renewal.

What is the percentage of return, I can expect? Will I get more than lump sum investment?
SIP is always favorable than lump sum investment as different units are allotted at different market levels. The investor is not required to accumulate a huge sum at one go, but can invest periodically a small amount and accumulate in a phased manner. When the market is very volatile different units are allotted at different phases.

Can I invest in my child's name and be a guardian for him? On his attaining maturity, should the investment be revised and to be signed by him?

On Behalf of the Minor, the investment is made through the Guardian. �Based on receipt of attested copy of birth certificate of the minor, his PAN card copy, the banker's attestation of his signature and bank details along with a covering letter duly signed by both minor and guardian for change in status, the status could be changed from On Behalf of Minor to Individual.

Can I change the bank mandate from which the SIP amount is currently going to my Child's bank account (after child's maturity)?
Yes, bank mandate can be changed. A fresh SIP Auto Debit Form has to be issued for the same

Thanks to Sundaram BNP AMC.

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