Fixed Maturity Plans

Fixed Maturity Plans ( FMPs ) are more like Fixed deposits ( FD ), but vary in nature. Mutual funds have FMPs in their portfolios. How do they differ from fixed deposits? What are the tax implications? Do they give better returns than FDs? What is the difference between FD and FMP? Fixed Maturity Plans are close ended debt funds. i.e. unlike fixed deposits we can't buy them whenever we want. Only when the fund offer is .........

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Systematic Investment Plan

Way2goals image It is a method of investing a fixed sum in the units of Mutual Funds at regular intervals. It is like Recurring deposit. It is considered as one of the best ways to accumulate wealth over the long term. The investor can choose a mutual fund based on how it has done over the last 5-10 years and start a SIP. You can see an example of how investing in the SIP worked historically by using an interactive chart You can find out the ratings of Mutual Funds, their performances since inception, which company stocks they are holding etc. at Value Research Online.

According to new SEBI guidelines if you buy directly from the mutual fund, then there is no entry load!! Time and again it is proven that it is impossible to time the market. The investor can get the benefit of market volatility by investing in a SIP. SIP investor gets better returns compared to one time investor because of rupee cost averaging. If one invests for a longer time, the magic of power of compounding works.

The advantages of SIP are:
  1. Rupee cost averaging.
  2. Power of compounding.
  3. Affordable Investment option (Investment can be as low as Rs 500 per month).
  4. Potential of long term wealth creation.
  5. Compounded Returns.

This strategy has worked for millions of people around the world. More than anything else, it inculcates saving discipline.

How has investing in the SIP worked historically?

You can find how investment of Rs.1000 per month in Franklin India Blue chip fund has performed over 11 years starting from January 8th 2001 to December 8th 2011. As can be seen the investment of Rs 1,32,000 has grown to 4,85,404. In this entire period of 11 years the value of investment went below the original investment only for just 7 months of the total 132 months. In the market peak just before the financial crisis the value had gone upto nearly 5.5 lakhs. The compounded annual returns for this investment is over 22% Per Annum.

The chart below is interactive and you can see the values change as you move the cursor around.