The SIP& SWP
What is Systematic Investment Plan (SIP)?

A Systematic Investment Plan (SIP), more popularly known as SIP, is a facility offered by mutual funds to the investors to invest in a disciplined manner. SIP facility allows an investor to invest a fixed amount of money at pre-defined intervals in the selected mutual fund scheme. The fixed amount of money can be as low as Rs. 500, while the pre-defined SIP intervals can be on a weekly/monthly/quarterly/semi-annually or annual basis. By taking the SIP route to investments, the investor invests in a time-bound manner without worrying about the market dynamics and stands to benefit in the long-term due to average costing and power of compounding.

SIP (Systematic Investment Plan) - is one of the most disciplined approach to investments in mutual funds. It lets you set aside a fixed sum of money at regular intervals (weekly, monthly, and quarterly) with an objective to generate capital appreciation in the longer run. SIP investment inculcates the habit of savings, the best way to save regularly without fail is to make your Salary Day as your SIP date.

Why should you invest in SIP?

Other than being a disciplined approach to investments, SIP investment also has its own advantages. Two of which are – Rupee-Cost Averaging and Power of Compounding.

Rupee-Cost Averaging

Instead of trying to time the market, by investing on a regular basis, the investor benefits from the rupee-cost averaging factor. As the investments are done over different market cycles, the investor benefits from the market volatility by getting to buy more units of the same fund when the markets are low and buying lesser when the prices are higher.

Power of Compounding

Compound interest is said to be the eighth wonder of the world by noted scientist Albert Einstein. The rule of compounding is simple, the earlier you start the more you benefit. Meaning for every single rupee that you invest; it is deployed to earn return. This in turn is also possibly poised to earn more returns in future. A regular SIP mutual fund compounds your money and helps create wealth.

A systematic investment plan (SIP) is a powerful tool to fight market volatility and benefit from the enormous potential of compounding over time. A SIP allows you to invest in any mutual fund by making smaller periodic investments instead of a lump sum one-time investment.

For reference, I am adding a snapshot of how compounding impact investment valuation with SIP. SIP amount = ₹1,000 per month.

ROI	5 years	10 years	15 years	20 years	25 years	30 years	35 years
5%	₹ 68,289	₹1,55,929	₹2,68,403	₹4,12,746	₹5,97,991	₹8,35,726	₹11,40,826
7%	₹72,011	₹1,74,094	₹3,18,811	₹5,23,965	₹8,14,797	₹12,27,087	₹18,11,561
10%	₹78,082	₹2,06,552	₹4,17,924	₹7,65,697	₹13,37,890	₹22,79,325	₹38,28,277
12%	₹82,486	₹2,32,339	₹5,04,576	₹9,99,148	₹18,97,635	₹35,29,914	₹64,95,269
15%	₹89,682	₹2,78,657	₹6,76,863	₹15,15,955	₹32,84,074	₹70,09,821	₹148,60,645
20%	₹1,03,454	₹3,82,364	₹11,34,295	₹31,61,479	₹86,26,708	₹233,60,802	₹630,83,478

What Are the Key Rules of Investment That Enable Compounding?

1. Make an early start

Starting early to invest is the key to making the most out of the power of compounding. If you start investing from the time you start earning, then it will make for a solid base that will enable your funds to grow further over time.

2. Discipline

If you wish to create a healthy portfolio, then you must define your priorities and be regular in your investments. Regardless of how less you earn, knowing what your preference is and understanding how being disciplined now would pay off later, this will help you develop the habit to keep funds aside for investing.

3. Be patient

A lot of investors would like to have quick returns, not realizing that it is the long-term investments that powerfully reap from the concept of compounding. You will have to give your investment some time to grow to a significant sum.

4. Check your spending

Every individual should inculcate the habit of saving. Also, investors should know where they need to spend their money. This is when budgeting becomes essential as it ensures you tracking your expenses. If you spend wisely now, then you will reap better later.

5. Top-Up SIP

Top-up SIP is a facility that lets you increase your SIP by a fixed amount or percentage (say 10%) every year or at pre-defined intervals in line with an increase in your income/savings.

This Top -Up in your SIP allows your investments to be in line with the increase in the cost of living or inflation and helps you plan for your financial goals right. It can also help you reach your financial goals earlier or create a larger corpus for your goal.

Reviewing and rebalancing

The investor’s work doesn’t stop here. Though you do not have to check your portfolio on a daily or weekly basis, it is necessary to evaluate it periodically and see if it is on track. Here it comes our role. We have a dedicated team who takes care periodic reviewing and rebalancing of our investors portfolio to get the optimum returns to the investor. We have technology which helps to manage and review funds and advise the investors to make suitable changes from time to time to reduce the risk involved and enhance the value of the investors.The portfolios will also be rebalanced once in a year to ensure that the risk profile does not change.

The 4 categories of investment type will take care mostly all type of investors. Here one more category of investor rather we can refer as they want regular income from their investment instead of investing on a regular basis. These types of customers are mostly above 65-70 years, they have either invested in the past or they want a lumpsum investment and need regular income for their expenses.

What is Systematic Withdrawal Plan (SWP)?

Systematic Withdrawal Plan (SWP) is a facility offered by mutual funds through which an investor can withdraw a pre-determined amount at pre-decided intervals from his/ her investments in select mutual fund schemes. SWP in mutual fund helps in creating a regular source of income to retirees or supplementary income for those with specific needs – like meeting child’s education, regular cash flows to elderly parents etc.

How does SWP work?
SWP (Systematic Withdrawal Plan) – works in an opposite way to SIP (Systematic Investment Plan). In this case, instead of you saving or investing a fixed sum on money at regular (may be monthly or so) intervals, you as an investor can withdraw a fixed sum of money from your investments on regular (monthly or so) basis.

How can you opt for SWP in Mutual Funds?
In order to start a Mutual Fund SWP with Mutual Fund, you need to invest in one of Mutual Fund open-ended scheme. Post investment, you as an investor can start availing the SWP facility as per your requirement. By taking the mutual fund route for regular cash flows through SWP, you get the benefit of Timely Cash Flows along with possible Capital Appreciation on the residual investment.

Rupee-Cost Averaging
Just like in case of SIP (Systematic Investment Plan), the Rupee-cost averaging also works in favour of the investor while opting for SWP. As the investor, would end up redeeming lesser number of mutual fund units to meet the required cash flows in a favourable market condition.

Mutual fund suitability matrix
Find out where each category of mutual funds fits into the matrix
Therefore, the returns from these portfolios will depend, in a large measure, on the investing discipline of the individual.
Based on above mutual fund suitability matrix we can classify most of the investors in 5 broad categories.

1. Very Aggressive Investors: generally young investors who don’t mind taking risks
2. Aggressive Investors: Cautiously optimistic on markets want to invest in large cap stocks
3. Moderate Investors:who want a balanced mix of debt and equity, Get the best of both worlds
4. Conservative Investors:who don’t want to risk their money in stockswhen safety is paramount
5. Income generator Investors: Regular income in the golden years, generally retirees looking for a monthly income from their investments.

We hope you will find these model fund portfolios useful. Happy investing.

SIP Performance