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SIP Investment and ROI

01 Nov 2016

Systematic Investment Plans and ROI (Return on Investment) 

The world has grown from investment to investment. There are plenty of options available to the investors in the present financial world. Due to the globalization, the investors are also very keen to compare the options available to them in different financial pockets of the world. It means they are keen to compare the returns offered by one investment in one country with the investment done in other country. 

Similarly, within the country, there are many options available to them. There are options like investment in the stock market by purchase of the shares or equities of companies, bonds, debentures, Certificate of Deposits, money market instruments like Commercial papers etc. Now it depends upon the risk taking capability of the investor to choose the right kind of investment or a portfolio of investment.

Now when the investor becomes sure of the type of investment portfolio he or she is desirous to have, the important factor comes in mind the nature or the way of investment. Should the right kind of investment portfolio be achieved by purchasing at one go, or intermittently as per the conditions of the market to which the investment belongs or by regular and continuous investment irrespective of the market conditions. 

Again this depends upon the risk bearing capacity of the investor concerned and also the returns expected by the investor out of such investments. Hence there are investors which make purchases in the financial market in one go, there are some cautious investors who see the markets and keep investing at some point time when the market conditions are favorable for them and there are some passive investors or we can rather say long term investors who irrespective of the market conditions keep investing and thus see the portfolio to perform in the longer run. 

It is very difficult to actually suggest which kind of investment is correct and which is wrong. However, there is one benefit available to the latter wherein the goal is to create a portfolio for the longer run, the investment may bear the fruit with slightly less investment but the risk is spread on the time line of the investment. It eventually means that the portfolio will be built on the basis of the average and over a period of time and not at the particular price. 

This reduces the downside risk that the investor assumes while building the portfolio. Hence, due to this feature, one of the most popular forms of market investment in India is mutual funds. The mutual funds come up with the regular investments which we generally call SIP (Systematic Investment Plans). 

This SIP is available in the other forms of the investment preferences like recurring deposit (RD) and also in the stocks or bonds. But it is more popular in the mutual funds category since mutual funds india are large pool of funds wherein the funds are allocated to different companies or financial instruments and this further reduces the concentration risk (whenever a part of money completely invested in particular financial product, it has the risk of loss taking place if the market conditions are not favorable, this is called the concentration risk). 

Hence the systematic investment plans are preferred mode of investment since the investor knows the portfolio is being built for the longer run and any risk will be compensated by the average of the investment spread on the time horizon as per the investment period in the mind of the investor. This is one of the biggest advantages of SIPs. As this lowers the risk, the passive investor becomes less concerned about the daily market movement in that particular financial product.

Since the SIPs are the continuous investment with a time gap, they are usually preferred on the monthly basis by the investors. This allows the various strata of the people to invest as per the requirements and in small amounts also. This further allows the individual or the company to plan about the investment in a better manner. Like, in the systematic investment plan people know when to invest every month and how much to invest. 

Hence, the financial planning for the arrangement of the funds can be done in a better manner rather than in other two cases wherein it is uncertain when the markets would be favorable. The longer the SIP runs for a particular investment; the better is the advantage usually.

Hence SIPs are the best mode of the investment especially when the investor desires to take the calculated risk and build a portfolio. Find Sip roi value

Last Modified: Saturday 05 November 2016 05:19

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