SIP (Systematic Investment Plan)
When it comes to equity related investments, most people wonder about the effectiveness of SIP. There is a lot of apprehension (and misconception) prevalent on the street about SIP - that it would not give as good a return as a lump-sum invested during a down turn. Let us consider some scenarios from our real-life situation to understand the effectiveness of SIP. We take our tablets / health capsules daily, exercise daily, receive a pay packet monthly, pay our bills/taxes monthly and even diligently pay our insurance premium yearly. This is sufficient proof that a systematic and continuous plan works for most of our financial and non-financial matters of our lives. Scenario Analysis Now coming to SIPs, let us consider 3 investors, all investing the same amount of Rs.8.4 Lacs over an investment horizon of 7 years and compare their outcomes: A invests Rs.10000 in a monthly SIP and accumulates Rs.17.05 Lacs, with annualized returns of 19.88% B invests a lumpsum of Rs.1.2Lacs p.a using...