With the growing awareness towards investments, Mutual Funds have emerged as a highly popular investment option among investors in India replicating what has been witnessed across the globe. Mutual Funds score over other asset classes given the advantages of convenience & cost-effectiveness which at the same time strives to attain the objectives of capital appreciation/protection& income generation
A mutual fund pools the money of various investors having common objective with a view to invest in various securities. Mutual funds may invest in variety of instruments like stocks, bonds, money market securities, gold or a combination of these which provides diversification to your investments. These schemes are professionally managed on behalf of the investors to help them attain their financial goals.
Investor Safety:
Registration of Mutual Funds with SEBI is mandatory. With investor interest at the helm, SEBI has laid down strict regulations to safeguard investors against possible frauds, and every company issuing or dealing in Mutual Funds must abide by them.
Professional Financial Experts:
Every Mutual Fund scheme has a well-defined objective. And behind every scheme, there is a dedicated team of financial experts working in tandem with specialized investment research team. These experts diligently and judiciously study companies, their products and performance, and after thorough analysis, they decide on the best investment option most aptly suited to achieve the scheme’s objective as well as investor’s financial goals.
Diversifying Risk:
Mutual Funds diversify the risks of investment by investing in varied stocks across different industries or sectors. Market volatility seldom affects all sectors at once, and hence, the investor is saved from incurring heavy losses.
Rate of Return:
The return potential of medium to long term Mutual Funds multiplies manifold, resulting in greater profitability for investors in the long-term.
Minimizing Costs:
Compared to direct investment in the share market, making investments through Mutual Funds is a less expensive affair that helps minimize an investor’s overall cost of investment. Through Mutual Funds, the economy of scale tips in the investor’s favor as he will enjoy special benefits in terms of brokerage, custodial fees, etc.
Benefit of Liquidity:
Investors can encash his investments in Mutual Funds, partially or wholly, at prevailing net asset value, at any point of time. For Closed ended schemes, investors can encash their investments at prevailing Nav, subject to exit load at specific intervals, if provided in the scheme. In certain schemes, where lock in period is mentioned, investor cannot redeem his investment until that period.
Transparency:
Mutual Funds are the most transparent form of investment. Investors will receive detailed information and timely updates about the nature of investments made, fund manager’s investment strategy behind the investments, the exact amount invested in each type of security, etc.
Convenience:
Mutual Funds facilitate easy and disciplined investment as well as ensure easy withdrawal of funds as per investor’s convenience.
Choice of Investment:
There are different types of Mutual Funds across varied sectors, and with due assistance from a financial expert, the investor can choose a scheme that aptly fits his requirements, and helps him achieve maximum profitability.
Systematic Investment Plan (SIP)
This is a simple strategy for accumulating wealth over a period of time by investing regularly at a fixed interval of time in mutual fund schemes, this is similar to the concept of recurring deposits scheme, but this being in equity come tagged with relatively a higher risk and higher return than the recurring deposit.
What is Systematic Investment Plan
An investor commits to invest a specific amount for a continuous period at regular intervals, this ensures that he gets more units when prices are lower and fewer units when prices are high, this works on the principle of rupee cost averaging when invested at different levels and automatically participate in the swing of the market.
Advantages of Systematic Investment Plan
Power of Compounding, To avail the benefit of power of compounding one has to start early and invest regularly, a delayed investment will lead to greater financial burden to meet the required goals, at early stage a less investment needed where as more investment is needed at a later stage to accumulate the same planned corpus.
Rupee-Cost averaging
It means averaging the cost price of your investments.
SIP helps in averaging the cost as equal amount is invested regularly every month at different NAVs. SIP works well in a volatile market as in the months where markets are down you get more number of units as the NAV is down and when the markets are up you get less number of units. But over all the prices gets averaged out.
Let us see how: Say you make your first investment of Rs 1,000 at a NAV of Rs 10. In this case, the units acquired will be 100 (1,000/10). You make the next investment of Rs 1,000 at a NAV of Rs 12. Units acquired now will be 83.33333 (1,000/12). Now also suppose that you make the third investment of Rs 1,000 at a NAV of Rs 9 and the units acquired will be 111.1111 (1,000/9).
The average purchase cost works out to Rs 10.19 (3,000/294.4444).
Convenience:
It is very easy to start an SIP, you need to plan your saving wisely and keep aside some amount of money every month for investing in funds, investment can be done either by post dated cheques or through ECS instructions in specific fund house scheme, its always better to start at an early age with small amount and increase the same from time to time. If you have not invested yet, start now without any delay, waiting for the right time to invest can lead to missed opportunity, a Systematic Investment Plan (SIP) is a smart way to achieve your various financial goals and ensures you with the required corpus which was initially planned for the specific requirement.
One can take the benefit of SIP only, when you choose the right schemes and be faithful and continue to stick to it, without any deviations.
SIP investment in well diversified and good performing scheme that can provide financial solutions to your long term goals like child education, marriage and your retirement.
An investment of Rs.2000 every month for the next 15 years at 15% return per annum can fetch you Rs.12,32,731 at the end of 15th year (solution for your child education).
An investment of Rs.3768 every month in the next 20 years @ 15% return per annum can fetch Rs.50 lakhs at the end of 20th year. This could be the solution for your retirement.
A Systematic Withdrawal Plan (SWP) is a facility that allows an investor to withdraw money from an existing mutual fund at predetermined intervals. The money withdrawn through a systematic withdrawal plan can be reinvested in another fund or retained by the investor in cash.
STP refers to Systematic Transfer Plan where in an investor invests a lump sum amount in one scheme and regularly transfers (i.e. switches) a pre-defined amount into another scheme. Every month on a specified date an amount you choose is transfered from one mutual fund scheme to another of your choice.