Regular Savings Plan
From Financial Literacy Wiki
A regular savings plan (RSP) is a commitment to save a fixed minimum amount regularly, usually monthly, which is invested in unit trusts.
Many unit trusts offer RSP, some from just S$50 per month, after an initial investment of, say, S$1,000 has been made. The plan can be stopped at any time thereafter and you either sell the units back to the managers at the current market price or continue holding the units as an ordinary unit trust.
A Regular Savings Plan works in the same manner as an endowment plan, except that your savings are invested in a unit trust instead of insurance.
Benefits
Investors often worry that stock markets are over-valued and that they will buy at the wrong time. How often have you said to yourself, with hindsight, 'I should have bought then'? And yet it never appeared so obvious at the time.
If the large volatility of market movements makes you feel uncomfortable, RSP is a good way of smoothing out potential bumps. The chance to spread savings across funds with different risk profiles, is an additional diversification benefit. For this reason, many people use RSP to invest into unit trusts for long-term investment planning needs.
One way of looking at RSP is to think of it as a kind of 'drip feed'. Once you get used to the discipline of this kind of forced saving, it's a relatively painless way to invest. Indeed, half the attraction of RSP is the convenience of executing it, as transfers can be made by GIRO. And you can stop anytime.
It's surprising how quickly you can build up a substantial investment this way. Another benefit of RSP is 'dollar cost averaging'. This simply means your unit cost over the period would be less than the arithmetical average of the monthly offer prices. The statistical effect holds good for all RSP, particularly in volatile markets.
Investors who find the lump sum route to investing unsuitable should consider an RSP. It is a savings plan that makes investing affordable and accessible. It is particularly appropriate for anyone needing to build long-term capital from current income, such as an individual looking to build his retirement nest egg or parents looking to save for their children's tertiary education.
