SEBI registered Investment advisor (RIA) with Registration number – INA 000000342.
SIP, STP or SWP-How to invest in Mutual Funds?

Mutual funds offers flexible investment options to customers to invest in a basket of asset classes. You can get exposure to equities, Debt and Gold through mutual funds.  There are various mutual funds to cater to the needs of all customers as per the risk profile. It allows you to diversify your portfolio in various asset classes. It offers professional fund management expertise to optimize the return on investment.

How to invest in Mutual Funds

Most popular types of mutual funds are given below.

  1. Large Cap funds
  2. Large & Mid Cap Funds
  3. Mid & Small Cap funds
  4. Liquid & Liquid Plus Funds
  5. Debt Funds
  6. Balanced Funds
  7. Monthly Income Plans (MIP)

Let us discuss the flexibility options offered by mutual funds.

Systematic Investment Plans (SIP)

SIP is the most discussed terminology by all investment advisors. This is the simplest way of investing in mutual funds. It is nothing but investing a fixed amount every month. You fix the amount according to your financial goals and invest it regularly. You can issue post dated cheques or can opt for ECS facility. SIPs offer the benefit of Rupee cost averaging and bring in discipline in investing. Your investment will buy more units when the markets are lower and will buy fewer units, when the markets are higher. This will average out your cost and you will benefit when the market rise. This type of investment is ideal during volatile markets, because you need not worry about the levels of the market.

Now, you have daily, weekly, flexible SIPs etc. on the offer. But it is better to avoid complicated SIPs and stick on to the time tested monthly option.

Systematic Transfer Plan (STP)

STP is very useful, when you have a lump sum amount to invest in a mutual fund. Instead of investing say 1 lakh into equity fund in one go, you can invest that amount in the liquid fund of the same fund house and opt for a weekly transfer of 5000 to the equity fund. So, every week, 5000/- will be transferred from the liquid fund to the equity fund and at the end of 20 weeks, the entire amount will be reaching the equity fund. This will ensure that your money is unaffected by any market volatility in the short term. Your investment will be getting debt returns, as long as it is in the liquid funds. At the end of 20 weeks, you can transfer this accumulated amount in the liquid fund also into the equity fund.

You can also use this option to protect your savings when you are nearing the financial goals. Imagine, you have 10 lakhs in your equity fund, and you require the amount after 3 years for your daughter marriage. It is better to start a STP from the equity fund to a debt fund to protect your savings from any last minute market volatility.

Systematic Withdrawal Plan (SWP)

This allows the investor to periodically withdraw from the investment and offers regular income. Under this option, the investor can request for withdrawal of a prefixed amount at fixed intervals. The amount withdrawn is treated as redemption of units at the applicable NAV. He can opt for cheque payment or direct credit to his bank account.  This option is most suitable for the retired persons to ensure a steady income flow.

Why mutual funds?

Equity Mutual funds offers tax efficient way of investing for long term goals. The investments are tax free after 1 year of investment. Debt funds are eligible for indexation benefits, while calculating tax. This will practically take them, out of the tax net in periods of high inflation like this.

You can save through SIPs during your working period and manage them using STPs to optimize returns and to protect it from any market volatility. Later, you can withdraw from it using SWP to ensure regular income for your post retirement days.

1 Comment

  • Rajendra K Verma Posted July 14, 2012 4:07 pm

    I would like to know details on Mutual Fund Investment.


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