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Why should I invest in Mutual Funds?
Benefits of investing in Mutual Funds
Systematic Investment Plan (SIP)
Mutual Fund Systematic Investment Plan (SIP) gives an opportunity to create wealth over long term. Systematic Investment Plan is like a Recurring Deposit wherein the investor needs to remit a fixed amount into a chosen scheme for a predefined period. The advantage of SIP is that there is a lot of flexibility to change all these parameters subsequently also based on any change in our Investment Horizon or our expectations from the schemes.
SIP work using two important levers- Power of compounding and Rupee cost averaging
How does Power of compounding work in SIP?
The compounding refers to the re-investment of income at a rate of return to constantly grow the principal amount year after year. Getting the benefit of the Power of Compounding requires the customer to remain invested for a longer period. Starting early in life and remaining invested focusing on specific goals is the basic mantra of investment. An illustration is given below to prove the point:
| Investor | A | B |
|
| Invested Rs 1000 through SIP at the age of 20 | Invested Rs.2000 through SIP at the age of 40 |
| Total amount Invested | 480000 | 480000 |
| Amount at the age of 60 | 63.24 lakhs | 15.19 lakhs |
Compounded Annual Growth Rate 10% considered for illustrative purpose.
What is Rupee Cost Averaging ?
Rupee cost averaging helps to buy more units when markets are low and less units when markets are high.
The following illustration explains the principle behind rupee cost averaging.
| | Lumpsum Investor | Regular Investor (SIP) | |||
|---|---|---|---|---|---|
| Month
| Unit Price/ NAV | Amount Invested (in Rs.) | Units Purchased | Amount Invested (in Rs.) | Units Purchased |
| 1 | 25 | 100000 | 4000 | 10000 | 400 |
| 2 | 28 |
|
| 10000 | 357 |
| 3 | 30 |
|
| 10000 | 333 |
| 4 | 27 |
|
| 10000 | 370 |
| 5 | 24 |
|
| 10000 | 417 |
| 6 | 26 |
|
| 10000 | 385 |
| 7 | 23 |
|
| 10000 | 435 |
| 8 | 20 |
|
| 10000 | 500 |
| 9 | 22 |
|
| 10000 | 455 |
| 10 | 25 |
|
| 10000 | 400 |
| Total Units Purchased
|
| 4000 |
| 4052 | |
| Total Amount Invested
|
| 100000 | 100000 |
| |
| Average Price (Rs.)
|
| 25 | 25 |
| |
| Value of investment after 10 months
|
| 100000 | 101300 |
| |
|
Suppose a monthly SIP is for Rs 1000 and the fund's net asset value (NAV) is Rs 10. This will result in 100 units being credited to you. However, next month, on account of volatile market conditions if the fund's NAV falls to Rs 5, you will get 2,00 units. This will lower your average purchase cost. A SIP helps you to buy more when the stock market is falling and less when it is rising.
SIP - A SMART Investment Option through Federal Bank.
S Specific – Investment amount should based on a financial goal. M Measurable – Performance disclosures at regular intervals help keep track of your investments. A Available - Availability of Hand Picked Funds R Relevant - Relevant schemes according to your requirement T Timely – Helps you adopt a disciplined approach towards investing
For assistance please contact your preferred branch. |
Documents Required
The following documents are required for investing into Mutual funds:
- CAF (Common Application Form)
- Auto Debit/ ECS Mandate forms
- KYC forms (One-time registration of KYC compliance is required for investment across all funds.)
Proof of Identity (POI)
- PAN card with photograph.
- Unique Identifi cation Number (UID) (Aadhaar)/Passport/Voter ID card/Driving license.
- Identity card/ document with applicant's Photo, issued by any of the following: Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, Colleges affiliated to Universities, Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council etc., to their Members; and CreditCards/Debit cards issued by Banks.
Proof of Address (POA)
- Passport/Voters Identity Card/Ration Card/Registered Lease or Sale Agreement of Residence/Driving License/Flat Maintenance bill/Insurance Copy.
- Utility bills like Telephone Bill (only land line),
- Bank Account Statement/Passbook -Not more than 3 months old.
For Non-Residents
- Copy of passport/PIO Card/OCI Card and overseas address proof (Bank Statement) is mandatory.
- PAN card with photograph.
For MICRO SIPs (Resident and NRI) Micro SIPs - the aggregate of installments in a rolling 12 month period or in a financial year i.e. April to March does not exceed Rs 50,000/- Unique Identification Number (UID) (Aadhaar)/Passport/Voter ID card/Driving license
Attention Investors:
Prevent Unauthorized Transactions in your demat account - Update your Mobile Number with your Depository Participant. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat account directly from NSDL on the same day. Issued in the interest of investors.
KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
