Systematic Investment Plan (SIP):

SIP is a financial planning tool available for policy holder’s to create wealth and achieve their long term financial goals by contributing a fixed amount in a selected fund(s) at regular intervals, which could be either monthly, quarterly or yearly. The key benefits of SIP to policy holders are rupee cost averaging and also it inculcates disciplined approach towards financial savings rather than ad hoc investment decisions.

With the help of SIP, policy holders need not be concerned about timing the market correctly. Market timing risk is the risk of entering the market at a high price which may reduce long-term returns, or the risk of losing out on upside by waiting too long for a low level to enter. Policy holders trying to time the market correctly have either missed out big market rallies or have invested a lump-sum amount just when the markets have peaked. SIP helps policy holders ride the market volatility by averaging out the cost as they invest a fixed sum regularly at various levels.

SIP also helps in benefitting from the power of compounding, which means longer the investment horizon, the greater the benefit.

A good way to appreciate how SIP helps is to look at an example. Referring to the below Exhibit 2, policy holder who had selected SIP option was able to purchase more units at lower NAV and fewer units at higher NAV thus averaging out the cost price.

SIP is a tool to reduce risk of market timing, and as such it is not a return maximizing tool. In a rising market SIP investing underperforms lump sum investing at inception and in a volatile market SIP outperforms lump sum investment. Given that markets on average tend to be volatile rather than uniformly rising, usually SIP is a good risk management tool for policy holders in reducing market timing risk.

Exhibit 2: Policy holder systematically investing

Premium	Date	Invested amount in	NAV in	Units
Premium 1	November 27, 2001	50,000	10.33	4,840
Premium 2	November 30, 2002	50,000	10.88	4,596
Premium 3	November 29, 2003	50,000	18.52	2,700
Premium 4	November 30, 2004	50,000	23.05	2,169
Premium 5	November 30, 2005	50,000	32.10	1,558
Premium 6	November 30, 2006	50,000	46.48	1,076
Premium 7	November 30, 2007	50,000	66.33	754
Premium 8	November 28, 2008	50,000	34.53	1,448
Premium 9	November 30, 2009	50,000	60.80	822
Premium 10	November 30, 2010	50,000	71.41	700
Premium 11	November 30, 2011	50,000	60.12	832
Premium 12	November 30, 2012	50,000	72.49	690
Premium 13	November 29, 2013	50,000	79.29	631
Premium 14	November 28, 2014	50,000	113.70	440
Premium 15	November 30, 2015	50,000	109.76	456
Total investment		750,000
Average			53.99
Fund value	March 31, 2016	2,498,074	105.36	23,710
Annualized Returns		15.0%

Fund performance only. Actual example for policy holder investing systematically in Maximiser fund I.