Equity Systematic Investment Plan - SIP

Stocks with good fundamentals are known to be some of the best ways of investment plans and investment in equity stocks has reaped phenomenal returns amongst various other assets if the same has been done in an organized manner with long time horizon. It is very important to select stocks and the right decision of the right price to enter in equity investment where most of the investors often tend to commit errors.

Equity Systematic Investment Plan or SIP is an instrument that tends to help an individual in avoiding the risk of timing the markets and enable wealth development in an organised or disciplined manner by averaging the cost of investments. Saving which tend to be small could create the big corpus in the long run. SIP enables the individual in building a portfolio on a longer time basis with small investment that are done at regular intervals thus reducing the danger of market volatility.

Individuals have the option of choosing between Quantity based and Amount based SIPs, in Mutual Funds, Stocks, ETFs as well as Gold. Quantity based SIP is a type where a fixed amount of quantity of shares of a desired company is purchased at a predefined frequency while Amount based SIP is a fixed amount which can be decided by the individual intending to invest in selected share at predefined frequency.

Disciplined & Long Term Time Horizon

The formula for calculating Quantity is SIP Amount/Market price of the said share. Fractional value is ignored and the order is placed for the remaining quantity. In the case of Quantity based SIP the quantity which is to be purchased is specified by the individual and is fixed at the time of placement of order according to the desired frequency.

The order value is then calculated depending on the usual market price of the scrip while execution of the order. In order to have a long term wealth development through the equity market, it is essential to have a disciplined and long term time horizon that have integral features of SIP. The following features would make an appropriate choice for equity market –

• Disciplined and simple approach to investment
• Based on concept of Rupee Cost Averaging
• Investment possible with small sum of money invested recurrently to mount up wealth
• Flexible intervals like Daily/Weekly/Fortnightly/Monthly basis
• Flexibility with regards to Amount or Quantity based SIP

Avoid Majorly in Aggressive Funds

While investing in equity funds through SIP, though one will gain the rupee cost averaging benefits at the time of the volatile market phase, one should also avoid investing majorly in aggressive funds such as sector, thematic and mid-cap funds. One cannot guarantee better returns in excessive aggression.

On the contrary it could make your portfolio risky and probably disrupting the life stage with regards to investment goals. However, with mid-caps as a section of the portfolio, majority of it could comprise on large cap funds. Individuals often tend to start SIPs without a second thought on the amount they intend to invest comfortably. Often they try to make up for the lost time and then find it difficult to continue with their SIPs after a period of time.

This results in a stop of their investment and their long term life stage goals. Hence with systematic investment plans one should start conventionally and increase their investment amount gradually over a period of time ensuring stability.

Financial Services And Country Risk

Importantly, to attract new customers, foreign banks will make their reputation in the region by addressing several areas (retail banking, asset management ...) and extending their geographical coverage, in contrast to local, often focused on a number few countries. This strategy requires a deployment capitalizing on existing settlements, focusing on synergies (sharing of customer data ...), and market knowledge already acquired with the risks, a decisive element in the investment decision.


Indeed, Central Europe in particular differs from other popular markets like China and India by showing a mainly political and economic situation almost stabilized. Of course some main regulatory obstacles remain, like the restrictions governing credit growth, to inhibit growth in net banking income. Also binding regulations set by some central banks in the region often impose bureaucratic processes. Also, banks will have to deal with financial transparency may be limited, to understand the economic health of their third example.

However, the states of Central Europe, mostly integrated into the EU, should be quickly put in line with European standards and guidelines and promote the establishment of foreign banks. Their alignment of means of payment or accounting standards is remarkable.

Still, the disparities within the region persist. Some states of Eastern Europe have large current account deficits and political instability, like the Balkans. Therefore, it is questionable whether these countries will be able to follow the path of the "leading countries" such as Slovenia, Hungary or the Czech Republic and converge to a stable market economy and conducive to the rapid emergence of financial services. From this perspective, Europe is undoubtedly a great ally.

Financial Services

Consequently, the CEECs converge progressively towards consumption standards similar to those observed in Western Europe and reveal a proven potential for banking services. Although over 80% in Croatia or the Czech Republic, the rate remains low in most countries of the area, such as Romania, Bulgaria or Ukraine. As proof, the share of deposits to GDP stagnated in the latter State to 23% in 2005 against 90% for the euro area. Initiated fewer than twenty years, the transition from a de facto demonetized from Soviet pattern and a market economy is new and explains the low level of banking services. Therefore the CEEC are in a learning phase of the "bank" and the concepts and mechanisms inherent in the savings and credit, in a context marked by the absence of national champions or at local banks reference.

Thus, despite the rise of some local industry the development opportunities are real and evidenced by the growing demand for consumer credit or to the habitat. In addition to the benefits of the wave of privatizations, banking and investment also benefits from the financing needs of state and local governments under-equipped and is involved in the emergence of large industrial groups in the region.


To exploit these opportunities and differentiate themselves from their local competitors, foreign banks can rely on better product knowledge, particularly in private banking, where financial engineering is growing rapidly. The increased standard of living behind the rapid growth of the CEECs argues for a broader offering to meet increased need for diversified products, at least in the country’s most bank accounts or may become a near horizon. Meanwhile, banks will have to segment their offer and better distinguish the customers 'standards' of "tributaries" in particular financing. In this context, a solid local employee is no longer a luxury. They will have to learn to build a trusting relationship with customers, whose perception of banks is still mixed. The practice of clear and transparent pricing and secure banking will improve this perception.

Financial Management

The recent decentralization movement thus results in the management by local authorities of new economic functions in a new accounting and budgetary framework. The resources that these functions will induce change in level as the budgets that structure.
Local authorities must seek new funding to implement investments related to the exercise of their economic function, despite a high savings capacity.


With a self-borrowing, local governments must make a tradeoff between own resources and resources of loans to finance their investments. The bond acts as an adjustment variable whose magnitude depends on both the level of savings and the relative level of debt earlier.

After several years of moderate changes, it appears that the dynamism of local public investment began in 2003 continues at an annual growth of 8% for 4 years. Local communities continue to invest heavily:

* The election cycle is conducive to investment communal;
* While nearly 70% of public investment is devoted to building and public works, costs in construction and public works experience sustained growth;
* The transfer of responsibilities will encourage communities to support heavy investments (railway equipment, road investment ...).

This increase in investment volume is characterized by a need for increased funding. This results in increases in taxation and an increased reliance on borrowing, facilitated by a context of interest rates still low. In late 2006, the amount of the debt of local authorities is around 111 billion Euros, equivalent to 6% of GDP. This proportion is low in light of European commitments on debt: according to the Maastricht Treaty, the debt cannot exceed 60% of global GDP. In addition, the "financial valve" that is the fiscal autonomy increases the flexibility of local authorities in terms of borrowing.


The principles governing the development of local budgets (principle of annual, principle of unity, and rule of balancing the budget ...) require local management framed.
Therefore, despite important differences, the level of risk and solvency of all local authorities is excellent.

Opportunities for Custodians

We have watched the race in critical mass which was played at major conservative fund.
And later, we make the following observations:

* the trend towards concentration is more than ever in progress, especially for cross-border acquisitions. As such giants seek the conservation targets of all sizes very small (e.g. BPSS acquisition activities Exel bank ,Spain)
* Most major conservatives have seen their assets under management grow by 50% due to acquisitions of domestic and border ..
* The stability of the classification of the great conservative movement despite the concentration
* the gradual disappearance of the small conservative (a few billion Euros of assets under management). As such, it is clear that the deployment of value-added offers (MO Outsourcing, Pricing OTC ...) but also the increasing complexity of financial instruments makes it difficult to maintain small structures.

The last major change is semantic; we do not talk anymore but preservation of securities services to investors...

Constraints of financial investments

A company has a priority, to invest its own resources. If its own sources are insufficient, the company must raise its fund as equity. The conditions of funding of productive investment depend on specific characteristics to the financial situation of the company.


 Analysis on the financial investment has long been conducted in a theoretical framework defined by the Modigliani-Miller theorem (1958). According to this theorem, it is immaterial for a company to finance its investments through debt, issuance of shares, or retention of profits. This theorem is only valid under very restrictive conditions, which in practice are not checked: the hypothesis of perfect capital markets, lack of conflict between managers and shareholders, and the absence of distortions and taxation. The strict application conditions of this theorem led to his questioning, and guided the researchers to the idea of ​​an optimal capital structure of companies. Companies are advised to go into debt to take advantage of the leverage and the tax benefit associated with debt. But the growth of debt poses a risk of failure increased. The company must decide between the benefits of debt and the cost of default risk.


The borrowing capacity of a company depends much on its capacity that it can offer, and market conditions (level of interest rates). The level of profits and the level of indebtedness of the company are the two key indicators to assess the repayment capacity of the borrower. In this way, investment is determined by the level of profits and debt.


Economic research highlights the wide diversity of investment behavior of firms. This heterogeneity is largely explained by the different financing terms offered to them. The variable profit rate and debt ratio have explanatory power and real investment by small businesses, but not for the investment of large groups. Small firms have less collateral to offer banks, and therefore more difficult to finance their investments. The constraints are more strengthened in times of slower growth or recession.