With the Systematic Investment Plan (SIP) in Mutual Fund (MF) – especially in equity-oriented MF schemes – being in the limelight, other organisations offering fixed-return instruments are also looking for the opportunity to introduce systematic investment avenues.
For example Bajaj Finance has launched Systematic Deposit Plan (SDP), which allows investors to invest on a monthly basis instead of investing in lump sum.
Although the name is similar to SIP, the SDP is more comparable to the Recurring Deposits (RDs) offered by banks and the Post Office.
Like RD and SIP, the SDP allows a risk-averse investor to make regular investments out of his/her monthly earnings.
So, for an investor facing difficulties in making large investments at a go, SDP provides an opportunity to make continuous investments.
SDP Vs SIP
The main motive of investing in equity-oriented MF schemes through SIP is rupee cost averaging, where investors take advantage of market fluctuations by investing the same amount periodically. With stock markets fluctuating every moment, SIP allows an investor to invest in both up and down markets.
During up market, the NAV as well as the value of the entire investment rises, while in the down market, the same investment fetches higher number of units, giving the investors an opportunity of making higher gains when the market moves up again
However, with the rate of interest remaining the same over an investment period, investors get no additional gains by splitting the lump sum investments in periodic investments. In fact, every subsequent deposit will fetch a lower return than the preceding deposit on a given date.
So, SDP offers no other benefits, but to allow periodic investment opportunities for the investors, who don’t have money for lump sum investments.
On the other hand SIP helps an investor to reduce investment risks by providing opportunity to invest in both up and down market cycles and thereby getting a higher return.
So, SDP is not comparable to SIP, but its features are more like RD.