Mutual Fund SIP – plan or plunder

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SIP or Systematic Investment Plan has long been touted as a silver bullet for retail investors, especially for those who want to start investing in equities. This investment vehicle is promoted by all the mutual fund houses, distributors and financial planners. It has been marketed as the safest mechanism of equity investment that will outperform the markets and creates wealth over a long term. It is really hard (even for Google) to find articles that talk about problems or disadvantages of SIP.

Almost all the marketing around SIP indicates the following advantages:

Rupee Cost Averaging: The basic idea to make money is to buy at lower level. SIP allows you to buy more units when markets are less, thus reducing your average cost of buying units. But it is never mentioned that this method will work only in specific market conditions where the markets are in median range, then markets goes downwards and ultimately moves up. The intermediate downturns will cause SIP to buy more units and when the markets finally moves up, it gives better returns due to lower average cost of buying. The other market conditions are not favourable for SIP investment and some conditions are even detrimental as well.

Disciplined Investing: The basic idea is that a investor is 'forced' to invest regularly since the SIP amount is automatically debited from the saving account. But I believe that disciplined investment is really a habit rather than an advantage of any investment vehicle. It just forces an automatic deduction of SIP amount from your bank account, which is also true of other simple investments like recurring deposits.

The only one who gets benefit out of MF SIP is the mutual fund house and their distributors, since they get a regular committed revenue stream without spending any time or effort. SIP is just an investment vehicle to put your money into the underlying assets (which could be equities, bonds or gold etc.). So common sense tells us that if the underlying asset is doing badly, there is no way SIP is going to make money. The last 5 years (2007-2012) has not been particularly good for equities and hence it is no surprise that investments made into this asset class (be it via SIP or lump sum) are not doing very well.

It is a myth that SIP can give positive returns during any market condition. SIP will only perform when the timing (start/stop of SIP) and duration is right, as it is true with the underlying asset. A quick chart of SIP Vs. Lump sum investment might provide some insight:

Market State

Systematic Investment Plan

Lump Sum Investment

 

Rising Markets

As the market rises, your average cost will keep on increasing.

Your investment made is at the lowest price and hence the gain is superior

Lump Sum Wins

Falling Markets

As the market is going down, even if your average cost of purchase is reducing, but so is your final NAV and you are losing money

Your investment is at the highest price and hence the you will suffer losses

You lose in both cases

Markets with intermediate

downtrends but ultimately rising

The intermediate downtrends will cause SIP to buy more units and hence reduce average cost of buying. The ultimate NAV will be higher giving handsome gain.

The investment will not use the intermediate downtrends, so any gains will be marginal

SIP Wins

Markets with intermediate

uptrends but ultimately falling

The intermediate uptrends will cause SIP to buy less units and hence increase average cost of buying. The ultimate NAV may be higher but gains are less due to rising average cost.

The investment will not be impacted by intermediate uptrends

Lump Sum wins by a slight margin since it did not get affected by higher cost during uptrends

So the returns of a SIP will definitely depend on the

· Timing - Start and Stop of the SIP

· Duration – The duration for which the SIP was operational

As far as the disciplined investment goes, it is useful to note that there are other investment vehicles which can be combined with lump sum equity investments to ensure some discipline. As an example, instead of a SIP, an investor can choose to open a recurring deposit for six months and invest the lump sum received directly into mutual fund at the end of six months. It is also beneficial in terms of cost overheads, here is the comparison:

Case 1:

Case2:

Comments

SIP investment in Mutual Fund of Rs 2000 for six months

Recurring Deposit of Rs 2000 for six months + lump sum investment in same MF after six months

 

(Rs 30 + Rs 3.71) X 12 = 74.52 Rs commission to mutual fund house (ICICI Direct charges)

(Rs 33.71 - Interest earned on RD @ 6.5% pre-tax)

(ICICI Bank Interest**)

So the cost of Mutual Fund SIP is higher due to recurring nature of commission. Also which of the option will give higher returns will depend on timing of the investment.

**Another point to keep in mind is the pre-mature withdrawal penalty on RD (0.5% in ICICI) compared to exit load (1-3% before one year).

So SIP is not a magic wand which can give you positive returns irrespective of market conditions. It is rather a “Systematic Investor Plunder” and benefits the MFs and distributors most of the time. The only sip that will give you pleasure is sipping your tea!

How to Help Yourself Save for the Rainy Days

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This is a guest post by Robert McCafferty promoted by Guest Post U. The content and ideas belong to the author and post is only edited for visual aspects
Saving money today is not something that is a luxury. When life throws that little curve ball our way it usually costs money. If you don’t have that rainy day fund available you can risk incurring a lot of debt. Emergency funds are necessary to have as a fall back. They are the cushion you need financially if you get sick and can’t work or if you or your spouse loses a job. It’s a fund for car repairs or an emergency flight out of town. 

You don’t have to make a lot of money to save money. Don’t give up on an emergency fund and if you don’t have one, you need to start one now. There are a lot of ways you can save up some cash and put it somewhere it can grow. 

Below are some great ways to save for those rainy days. 

Long Distance 
If you make long distance phone calls now and again then you should probably drop the long distant carrier and use the minutes on your cell phone or get a prepaid phone card. Long distance phone calls can be very expensive and the carriers of long distance calls can be draining you of money. 

Cash 
Always try to use cash when paying for clothes, food, and other items. Try to not use your credit cards at all. Most people don’t end up paying off credit cards monthly and paying for some food that you ate four months ago leaves a bad taste in the mouth. Cash makes you much more aware of what you’re spending and people tend to spend less this way. 

Cell Phone Plan 
Look at your cell phone calling plan and think about changing your plan if you have added features that are costing you too much. If you use your cell phone for mostly personal calls, you probably could get rid of call waiting, surfing the internet, video, caller ID and other added features. You can save a pretty good bit of money by cutting out added features and lowering your cell phone plan if you are going over your minutes or being charged for things you can change. 

Health Plan 
If you are married and you and your spouse both work, comparing health care plans and going with the lower cost policy may save you lots of money. Compare the out of pocket expenses and what you pay for the benefits monthly. If one employer is cheaper and you’re not with that employer, switch up. 

Library
People spend about $400 a year on renting movies, about $500 on buying books and about $250 buying music CDs per year. Think about how much you can save if you get free books from the library. Most libraries also have movies and CDs that you can borrow as well. It’s a great way to reduce costs and be entertained free!

Saving for a rainy day really can come in handy when you don’t think it will. Having that spare few hundred dollars by cutting back on some small things can mean a big difference to you one day. Use some of the tips above and begin a small savings that can grow day by day. Be ready for your rainy day!

Robert McCafferty writes about parenting, family travel & finding affordable boat insurance quotes.

Top 5 Reasons Why Every Parent Needs To Save

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This is a guest post by Taryn Beckham promoted by Guest Post U. The content and ideas belong to the author and post is only edited for visual aspects

Children are a blessing, but what they are certainly not blessing is your bank account. Should you find yourself in a bit of a financial pinch, it can be considerably worse when you have children that are in dire need of specific things. This makes saving your money in the better financial times all that more important. 

Preparation
You cannot always account for everything that you need to spend money on, especially when it comes to having a child. It seems that all the time something new is requiring financial output from you. Whether its new shoes or lunch money, whether it would be new outfits or car insurance. It really just depends on the age of the children and what is going on in your life. Without savings, it can be hard to prepare for all of these inevitable needs. 

Rainy Day
The rainy day fund is something you should also have in the back of your mind. Considering the fact that we've determined children can be financially straining at times, it would be ill advised not to start putting money back in the event that something rather costly comes up. For example, something could happen to the family vehicle that needs to be immediately taken care of. 

Time Off
Whether it is for the birth of your first child, later children that come after the first, or just something that could pull you away from work, it is important to be prepared for the possibility of needing time off. Time away from work is time that is often unpaid. So apart from vacation days that are accrued in some cases, time apart from your job is nothing good financially. However, being able to utilize a bit of your savings until you are ready to head back to the workforce can prove invaluable. 

College
As commercials and better logic of the current financial climate would suggest, it is never too early to start thinking about college for your children. Savings are a great way to start putting aside your money for the day that they decide to leave the nest to pursue higher education and better paying job opportunities. While this can be costly, even with some financial aid from the school's resources, it doesn't have to be if you start saving earlier. 

A Great Example
Taking savings seriously is not something that a lot of families seem to exemplify these days. However, saving can be habitual and influential to your children. If they can model this behavior in their own lives, you can set a precedent of smarter financial decisions and money management for their futures. 

These are several of the reasons why parents should seriously consider saving. While it is just a smarter financial option, allowing yourself to be prepared for what might be coming, it is also a great example for your children and their future. Making these changes in your life right now could help you out of devastating financial hardships that could be on the horizon, and can potentially secure enrollment in a college or university once they have completed high school.


Taryn Beckham writes about finance, parenting & criminal background checks.

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Why You Shouldn’t ‘Invest’ in Life Insurance

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A must read article by Deepak Shenoy!! Some snippets

Insurance products are incredibly complex, despite their heavy regulation. Financial products are typically of two types —high-risk, where the returns cannot be predicted in any reasonable manner, and low-risk, where the return is either guaranteed or specified (the risk is in whether the seller will go bust). Equity is a high-risk proposition, while fixed deposit and other debt options are the second. Insurance products provide a mix-and-match,

 

Most people give up before they reach the "real return" calculation — which is why insurers can easily stuff charges into such policies, knowing that if someone is silly enough to invest with a 5% real return, he won't even know that they can take a significant chunk of money as commissions.

Bangalore Birth Certificate

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After a week of applying for birth certificate, I finally got it. Here is a snapshot of my baby’s birth certificate
Bangalore BBMP birth certificate
  I really imagined that getting the certificate would be simple task of giving the receipt and getting the signed copy from the ground floor counter at BBMP (Majestic). But it was not so simple!!
It took me close to two hours and following steps to finally get the certificate:
1) At the ground floor, gave my receipt, the person checked into one of the folder, could not find the certificate and asked me to go to second floor.
2) On the second floor, (this is where i submitted my application earlier), the certificate printout were being delivered in separate queue. It was not an organized queue though.
3) Finally after a wait for an hour or so, got the printouts. Interestingly the lady at the counter  asked me the name of the baby (which I had already filled in the form while applying). She said you can fill out any name that you desire!!
4) Once I had the printout, I went to the first floor, stood in another queue and got the signature of the BBMP authority
5) Finally, I reached ground floor with the signed copy and got the BBMP seal stamped on my certificate.
The best part of my experience was that I did not pay bribe at any single desk and the process was totally smooth. Kudos to BBMP!! The only last hiccup was to physically go there and collect the certificate, so an online process [& certificate couriered] would have been awesome!!
Unfortunately I could not find the link (Google, BangaloreOne website did not helped) where I could have applied online for a digital certified copy of birth certificate. I saw one person standing ahead of me got the digital certified copy printed on the second floor [no sign/seal required of-course].
If anyone knows how to apply for digital certified copy of birth certificate, please share.

Birth Certificate in Bangalore

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I was recently blessed with a baby in Manipal Hospital Bangalore. It is now more than a month after home-coming and as a first time parents we are going through the highs and lows of nurturing a baby. It is not easy to manage the chaotic life immediately after the birth and hence now with some breather, I thought of going after the birth certificate from BBMP.
It was a real surprise that not much information is available online about getting a birth certificate, expect this post from Amit, that is more than five years old. The post was very useful (including some comments) but few things have changed and I wanted to share that information with everyone.
In the hospital you are going through so much of panic, stress, sometimes mental defeat that any formalities seem like a huge burden. Unfortunately I had no-one except my wife (who was obviously more stressed than me) during this crucial period. The first mistake that I made was to not provide the baby name for hospital certificate. We had all the time in the world during the pregnancy to decide on one name of boy and one name of girl. This would have been really useful later on as you will see. If the name of baby is not provided then in such a case the hospital will issue a birth certificate with “Baby of [Mother Name]”.
The second mistake that I made is not to visit the BBMP office within one month of birth. The hospital, based on the form submitted by you, forwards all the details of the birth to the BBMP office. The good part is that now-a-days all of this is online so in most cases the data reaches the BBMP office within couple of days. It is important to ensure that all details are correct in the hospital records and the certificate you receive from hospital.
When I received the birth certificate from Manipal Hospital (Ground floor behind the inquiry counter they have medical records office), I was given a map of the BBMP office in Kasturi Nagar. This was the same office which was earlier in Domlur and is now shifted to Kasturi Nagar. The map was pretty accurate and I reached the office at 11 AM. I had already downloaded the application for birth certificate form and filled the same. The interesting point to note is that this form has no option to provide the baby’s name. When I reached the Kasturi Nagar BBMP office, first floor (which was pretty small with just three desks) the person told me that I have to go to the Majestic office because it is more than a  month of the birth.
But instead of directly going to Majestic office, I asked few people and got to know that the BBMP office in Mayo Hall is good enough. When I reached the Mayo Hall office, the counters are on the ground floor itself. I could have got the certificate there itself, but for the fact that the hospital records did not had the baby name. So the person at Mayo Hall told me that they can give a birth certificate without the name of the baby. The name can be added later, but since I did not wanted to visit again, I decided to go to the Majestic BBMP office.
There are two BBMP offices in Majestic (near Upar-pet Police Station). The one adjacent shopping complex to the police station has the office that I finally reached. In the office at the ground floor, you can get the form (in case you did not download) and an additional form to enter the baby name in the birth certificate. I filled up both the forms and reached second floor and submitted the form. I paid Rs 140 and got a receipt for the payment. It will take a week for the certificate to be ready, which I need to go and collect from the ground floor. Some points to note:
  • As per the lady at the counter, you need to apply for minimum three copies and maximum five copies of the certificate. 
  • I did not had to go through any additional process (like going to court etc) even after one month. I think same applies for application within one year of birth.
  • One person in front of my queue faced the issue that his details were not available with BBMP, so may need to cross-check with hospital.
  • There is no need of going to a middle-man for birth certificate, since the process is simple, except the need to visit the BBMP office.
I was really impressed with the straightforward process of getting the birth certificate and the forms are also very simple. Interestingly, BBMP is in the process of enabling online application of birth certificate and issuing a digital certified copy to the applicant. Although it is not yet started but it is a great initiative. Another effective method is to allow the BangaloreOne centres to issue birth certificates.
You can read this document to know why birth certificate is required and important. The key points on why birth certificate is required are (from document):
    • A birth certificate is needed to obtain a passport, a marriage or a driver’s license. It may be required to open a bank account, to apply for and secure formal employment and to inherit property
    • A birth certificate may also be needed obtain family allowances, ration card, insurance, and a pension.
    • A birth certificate proving identity and age is the gateway to democratic participation in civil society, enabling a person not only to vote in electoral
      processes, but to contest for Public office.
    • A streamlined birth registration system, with a unique identifier for each child can pave the way for a sophisticated citizen’s multi-purpose identity card.
I will upload a sample copy once I receive the birth certificate for my daughter. Share your experiences in the comments!!

Update: I got the certificate.
Update2: As requested by anonymous comment, here is the map location of Upparpet Police Station
View Upparpet Police Station in a larger map