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Systematic Investment Plan (SIPs)

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.

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Systematic Investment Plan (SIPs)

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

  2. 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. RR Investors Retail Services (P) Ltd. www.rrfinance.com

  3. You must have heard this statement more than n times now that … “SIPisthebestinvestmentstyle” So let’s understand why SIP has emerged as the most powerful style of investing in recent times through Somereallifeexamples…. RR Investors Retail Services (P) Ltd. www.rrfinance.com

  4. There are basically three points that makes SIP such a strong concept • RupeeCostAveraging • PowerofCompounding • Markettimingirrelevance Let ussimplifythesetermsinnextfewslides… RR Investors Retail Services (P) Ltd. www.rrfinance.com

  5. RupeeCostAveraging To understand this concept more practically look at the illustration below. The SIP investor finisheswith 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. RR Investors Retail Services (P) Ltd. www.rrfinance.com

  6. PowerofCompounding • 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 RR Investors Retail Services (P) Ltd. www.rrfinance.com

  7. Markettimingisirrelevant Let’slookattheaboveanalysisinthenextslidewhetheritactuallyhappens… RR Investors Retail Services (P) Ltd. www.rrfinance.com DataSource: Bloomberg

  8. TimeinthemarketmattersMarket Timing VS nottiming DataSource: Bloomberg *CAGR(Compound AnnualGrowthRate)-The year-over-yeargrowthrateofaninvestmentoveraspecifiedperiodoftime RR Investors Retail Services (P) Ltd. www.rrfinance.com

  9. Now that we have seen the Power of SIP; let’s try to address this point … “WhenSIPworksbestforus” Few slidesfromhereonwillexplainthismoreclearly…. RR Investors Retail Services (P) Ltd. www.rrfinance.com

  10. SIPwillworkbestiffollowingactsaredone: • StartEarly • InvestRegularly • Investfor LongTerm • InvestintheRightAssetClass RR Investors Retail Services (P) Ltd. www.rrfinance.com

  11. InvestRegularly RR Investors Retail Services (P) Ltd. www.rrfinance.com

  12. InvestforLongTerm DataSource: Bloomberg Hence longer your SIP Period • Lowertherisk • Greatertheeffectofcompounding • Morepredictableaveragereturns RR Investors Retail Services (P) Ltd. www.rrfinance.com

  13. InvestintheRightAssetClass UndoubtedlyEquityisthe winnerovertime… RR Investors Retail Services (P) Ltd. www.rrfinance.com

  14. 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 … RR Investors Retail Services (P) Ltd. www.rrfinance.com

  15. CaseStudy– Real LifeSituation • 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 RR Investors Retail Services (P) Ltd. www.rrfinance.com

  16. 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. Therefore to generate this income every year post retirement you need to accumulate a corpus Incometo be generatedpostRetirementRs.36,00,000p.a. Your first reaction Impossible! It cannot be achieved. But then there is a solution… Corpus Required at the time of Retirement R R Investors Retail Services (P) Ltd. www.rrfinance.com

  17. Sowhat’sthe Solution…Justonesimplething 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 15years, he would have invested 27 lacs and that would have grown to a whopping number of 3.4 croreas on date; in spite of so many pitfalls in equity markets in last 15 years. RR Investors Retail Services (P) Ltd. www.rrfinance.com

  18. Still need to think; No pressure but see this what the delay can cost in the same case study Time to Retirement (yrs) 30 25 15 10 After 5 years from now After 15 years from now After 20 years from now InvestmentRequired Today Monthly 15,000 21,000 48,000 80,000 Annual 1,80,000 2,32,000 5,76,000 9,60,000 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.. RR Investors Retail Services (P) Ltd. www.rrfinance.com

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

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