Systematic Investment Plan (SIP)

A Systematic Investment Plan (SIP) is an option that allows investor to invest a fixed sum of money at periodic intervals on specific dates.

Why investors should go for SIP

A Systematic Investment Plan works for investors having a lower risk-apetite in three ways:

• It helps to save regularly and thus inculcates a sense of discipline
• It harnesses the power of compounding
• It is the best possible way investors can reign in impulsive buys-and-sells that otherwise he is gripped by in times of market volatility - Rupee cost averaging

Power of compounding

The longer one keeps his money invested, the faster it will grow. When the returns begin to earn money and those returns start to earn... small amounts of money can snowball very quickly. Compounding being the tool that allows making the most of small amounts invested for long periods.

Rupee cost averaging

It tells how effective disciplined investing on specific dates is, as compared to lump sum investing on random dates.

SIPping the Standard Chartered Mutual Fund way

Standard Chartered Mutual fund offers a very convenient way of SIPping.

Advantages-

• No post dated cheques and no specific dates either.
• Investors are required to tell-    Amount he needs to save
• Investors are free to choose any amount (minimum Rs 500 and in multiples of Re 1/-) and any date as per his convenience.
  The bank will intimate the debit instruction 2-3 business days before the actual debit will happen so that investors can be ensured that his account is funded with the requisite amount.

6.3 

Charges                                                                                                           

The Asset Management Companies (AMCs) managing the Mutual Funds levy a load as a percentage of NAV at the time of entry into the Schemes or at the time of exiting from the Schemes.

Entry Load - It is the load charged by the fund when an investor invests into the fund. It increases the price of the units to more than the NAV and is expressed as a percentage of NAV.

Exit Load - It is the load charged by the fund when an investor redeems the units from the fund. It reduces the price of the units to less than the NAV and is expressed as a percentage of NAV.

Cost of Churning/Turnover cost - It refers to the costs associated with the churning (or changes made to the holdings) of the portfolio. Portfolio changes have associated costs of brokerage, custody fees, transaction fees and registration fees, which lower the returns. The quantum depends on the management style of the fund manager.

Expense Ratio - The Expenses of a mutual fund include management fees and all the fees associated with the fund's daily operations. Expense Ratio refers to the annual percentage of fund's assets that is paid out in expenses.

Tax                                                                                                                                  Capital Gains Tax- The profit realizations on sale of securities and certain other capital assets (including units of mutual funds) are called capital gains. The gains can be classified into long-term or short-term depending on the period of holding of the asset and are charged to tax at different rates. Gains on mutual fund units held for a period of 12 months or more are long-term gains. These gains are taxable.

Dividend Distribution Tax – The Mutual Fund schemes distributing dividends on their units to the investors attract a distribution tax as per tax laws.  

Securities Transaction Tax – AMCs managing the portfolio have to pay STT on transaction (buying/selling) of different securities in the stock market. Presently the tax rate is 0.025%.