down to `10 (in March, the NAV is

`20; in April, its `18; in May, its

`17, and so on). In that case, you
are able to buy more number of
units at lower costs. So, the average cost of units acquired over the
period is lower as compared to, say,
buying units at one go through a
lump sum investment into the mutual fund scheme*. If the market
goes up, the NAV will also go up so,
and you can earn better returns.

SIP and disciplined

approach
One of the major advantages of SIP
is that it helps one in becoming a
disciplined investor, as a fixed sum
is deducted from the investors bank
account each month in accordance

with the mandate given. Therefore,

one need not fill out the application and sign a cheque every time
one has to make an investment.
Also, investors can start SIPs with
amounts as little as `500.

Better returns
The SIP format of investing inculcates discipline in the investor, as
he or she consistently invests a fixed
sum of money at regular intervals.
Through SIP, one can stay invested
over the longer term, where ups and
downs of the stockmarket would
get averaged out, thereby offering
better returns. Therefore, SIP promotes the culture of investing by
giving better returns and by allowing the investor to invest bit by bit

* SIP does not assure a profit or guarantee protection against a loss in a declining market.

DISCLAIMER

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,

READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
As part of its Investor Education and Awareness Initiative, HDFC Mutual Fund has sponsored this supplement
on Systematic Investment Plans (SIP) in Mutual Funds. The contents, views, opinions and recommendations in
this supplement and the computations of the calculator are those of the Publication and they do not necessarily
state or reflect the views of HDFC Mutual Fund/ HDFC Asset Management Company Limited (HDFC AMC).
HDFC Mutual Fund / HDFC AMC has not verified the contents of this supplement nor do they accept any
liability arising out of use of this information.

[ 4]

an investor education and

awareness initiative From hdfc mutual fund

SIP: start
early, save
regularly

systematic investment plan

Besides, they often perceive investing as a cumbersome process. This

is where SIP comes in handy, A
good way to save through MFs is to
set aside a certain amount of ones
income for them. This, besides helping one make forced savings, also
gives one a financial headstart.

Power of compounding

What is an SIP?
A systematic investment plan (SIP)
is a way of investing in mutual
funds (MFs) in which one invests
a fixed amount every month on a
pre-specified date. Almost all mutual fund schemes provide the facility
of SIP. This is a good investing option for a first-time investor who is
trying to bring discipline into his or
her investing process.

How it works?
Mutual funds provide an option of
choosing an SIP either on a monthly or a quarterly mode on a specific
date. Where one opts for a monthly
SIP, one can do it by signing 12 postdated cheques of equal amounts.
Another option is to authorise your
bank to debit the amount by filling
the electronic clearing service (ECS)
form. If one gives an ECS mandate,

[ 2]

the bank will automatically debit

the specific amount every month
on a specific date available with the
scheme, from your bank account.

The rule of the thumb is to invest

regularly and keep reinvesting the
returns. Compounding is a simple
concept that offers astounding returns in the long run. With simple
interest, you earn interest only on
the principal whereas with compounding, you earn interest on the
principal and additionally on the

Benefits of
starting early
The early birds always have an advantage over those who are off the
blocks late. They manage to save a
decent pile for their requirements
with much less fuss. Usually, people
at young age undermine
the importance of saving
small sums of money and
keep procrastinating,
pushing the start
to a later date.
interest. In other words, its a way
of making your money work harder for you. Lets consider what the
power of compounding does to an
SIP of `500 a month in a scheme

that offers a conservative 12 per

cent return, over 30 years. The total investment of `1.80 lakh (principal) grows to `15.26 lakh over
that period.

HOW SIP helps in riding

market volatility
An SIP is a regular investment plan
available on all kinds of mutual
fund schemes, though it works best
with equity schemes. SIPs help the
investor make profit from stockmarket volatility by automatically
buying more units when prices are
falling and fewer units when prices
are rising, thus lowering the average purchase price.

How SIP helps in rupee

cost averaging
When one invests through SIPs,
he or she buys into the fund at different net asset values (NAVs). For
instance, when the market is rising, the same investment fetches
the investor less units at a higher
NAV and when the market is down,
the investment buys more units at
a lower NAV. Over long periods of
time, investors average out their
investments as they accumulate
more in a bear market and less in a
bull market. Lets suppose you were
to start an SIP in a fund in January
at the prevailing NAV of `20 for six
months. Now, the market goes down
for six months and the NAV comes

an investor education and

awareness initiative From hdfc mutual fund

[ 3]