Systematic Investment Plan (SIP) units redemption

We all invest in mutual funds.

Many of us who try to save our hard earned money from being taxed by  investing in Tax Saving Mutual Funds, with a lock in period of 3 years.

What is Systematic Investment Plan SIP?

SIP is a mode of investing in a mutual fund.

For example, You can invest Rs. 1,00,000 in any mutual fund of your choice, in two ways:  

• The lump sum way, where you buy units for a cost price of Rs. 1,00,000 in a single transaction.


• The SIP way, where you choose to buy units for a cost price of Rs 10,000 for 10 months i.e., in 10 transactions.

So in a way, SIP is similar to a Recurring Deposit. Every month on a specified date an amount you choose is invested in a mutual fund scheme of your choice.

People can choose the one that suits them the most or which they find less risky.

This is how you invest Rs. 1,00,000 through SIP:

Month	Investment Amount	Units Purchased
Jan,2011	Rs. 10,000	50
Feb,2011	Rs. 10,000	20
Mar,2011	Rs. 10,000	40
Apr,2011	Rs. 10,000	60
May,2011	Rs. 10,000	100
Jun,2011	Rs. 10,000	70
Jul,2011	Rs. 10,000	50
Aug,2011	Rs. 10,000	20
Sep,2011	Rs. 10,000	30
Oct,2011	Rs. 10,000	10

SIP units redemption:

Unlike other  mutual funds where units can be sold or redeemed at any point of time (not intraday), in Tax Saving mutual funds the units can be redeemed only after they have matured, i.e., after the lock in period of 3 Years.

This is how the units purchased through SIP will mature after a period of 3 years:

Month	Matured/Redeemable Units
Jan,2014	50
Feb,2014	20
Mar,2014	40
Apr,2014	60
May,2014	100
Jun,2014	70
Jul,2014	50
Aug,2014	20
Sep,2014	30
Oct,2014	10

 As a majority of the mutual funds are open ended schemes, you can choose to either stay invested or sell/redeem the matured units.

There are specific Unit Redemption forms for all mutual funds, mostly available on their website, where you need to fill in the redeemable units you wish to sell and submit at their offices.

Or

Most of the mutual funds have now come up with their online portals where investor can create account using their mutual fund folio no, login and do the buying/selling of units.

Copyright © 2011 randomchores.

Fixed Deposit (FD) Vs Post Office Monthly Income Scheme (POMIS)

The current rate of interest on FD is 9.25 %( @ State bank of India for 5 years and up to 10 years).

The advertised effective rate of interest on Post office MIS is 10.94 %(Maturity Period for POMIS is 6 Years).

“Why would I put my money in FD ? ”,  would be an obvious question at this point.

But to understand the difference in an efficient way, let’s do some simple math and see how they perform in  1 year duration.

======================================================

Scenario 1a: Fixed Deposit

Let’s start with a sum of Rs. 3,00,000.

Using the compound interest formula:

Principal: Rs. 3,00,000

Interest Compounded: Quarterly

Rate of Interest: 9.25

Time in Years: 1

You earn an interest of Rs. 28,727.5

======================================================

Scenario 2a: Monthly Income Scheme

Principal: Rs. 3,00,000

Interest Compounded: Annually (sad but true)

Rate of Interest: 8

Time in Years: 1

You earn an interest of Rs. 24,000

======================================================

The key difference between MIS and FD lies in how you get back this earned interest .

On investing an amount of Rs. 3,00,0000 in Post Office MIS scheme, you get an income of Rs 2,000 every month, hence the name Monthly Income Scheme. This adds up to an annual interest of Rs. 24000 calculated in Scenario 2a.

Having this understood, let’s see how they perform in 6 years duration. 

======================================================

Scenario 1b: Fixed Deposit

Principal: Rs. 3,00,000

Interest Compounded: Quarterly

Rate of Interest: 9.25

Time in Years: 6

You earn an interest of Rs. 2,19,290.02 at the end of 6 years.

======================================================

Scenario 2b: Monthly Income Scheme

If you decide to invest this monthly income of Rs. 2,000 in Post office Recurring Deposit at the current Rate of interest of 8%, this is what future holds for you.

Monthly Deposit Amount: 3,00,000

Interest Compounded: Quarterly

Rate of Interest: 8

Time in Years: 6

You earn an interest of Rs. 182015.65

+

5% bonus on principal(on Maturity): Rs.15,000 .

You earn a total interest of : Rs. 182015.65 +  Rs. 15,000 = Rs. 197015.65 at the end of 6 years.

======================================================

Conclusion:   

Rs. 2,19,290.02 > Rs. 197015.65

=Fixed Deposit > Monthly Income Scheme

=Fixed Deposit is better than Monthly Income Scheme

Hence proved.

“But where is the 10.94% rate of interest, which is being advertised on the Indian Post office website?”

One way of representing this interest earned above is to divide it by the duration in years.

Rs 197015.65/6 = 32,835 i.e., the interest earned per year.

Now let’s find the per year interest rate on this (32,835/300,000)* 100 = 10.94%.

This is the rate being advertised.

If calculated the same way, the interest rate on Fixed Deposit comes out to be 12.18%.

Copyright © 2011 randomchores.

How to know your EPF balance online

Now you can know your Employee Provident Fund (EPF) balance online

Go to  http://www.epfindia.com/MembBal.html

and click on "Click Here"



or go directly to

http://59.180.233.228/epfo/member_balance/member_balance_office_select.php

Step 1: Select PF Office State



Step 2: Select your EPF Office



Step 3: If your EPF account no is in the format:

BG/BNG/12345A/45678

then

• Establishment Code is 12345,


• Extension Code is A,


• and Account Number is 45678.

and this is where this info goes:



Leave the extension code field blank, in case your account does not have one.

In the fields below enter your name (as it appears in EPF Slip) and mobile number. The given mobile number will be recorded along with the PF Account Number.

On successful submission of above information, the details will be sent through SMS to the given mobile number.

Copyright © 2011 randomchores.