SIP, STP, SWP and No Load Funds

Systematic Investment Planning [SIP]

Systematic Investment Planning is a simple process of investing a certain amount of money every month over an extended period of time, not considering whether the market is up or down.

Benefits of SIP

The main benefits of SIP are as follows:

• Affordable: An individual can invest small amounts in SIP. He/ she need not wait to accumulate a lump sum before investing.

   

• Disciplined: since every month, one has to put aside a certain amount for investing through SIP; it ensures that the client gives it the same importance as monthly utility bills. SIP is one of the best methods while saving for a specific goal, such as a house or a car.

   

• Certain: SIP uses the concept of "Rupee Cost Averaging"; which means that by investing the same amount of money every month; one tends to buy more number of mutual fund units when the market is down and less number of units when the market is up. Over a period of time, one’s average cost of unit will be lower and he doesn’t have to invest the time and effort to monitor the market movements or time his/her investments.

   

• Powerful: SIP is a powerful way of earning substantial returns on investments even by putting in modest monthly investments. This is due to the power of compounding interest.

SIP through ECS

One can also invest in an equity scheme by giving instructions to the banker. The first investment can be done through the bank that one aspires to give debit mandate to and the other installments will automatically, by way of ECS, go through from the same account as per given instructions.

Systematic Transfer Plan

A Systematic transfer Plan [STP], as the name indicates, gives an option to the investor, to transfer a certain amount from one scheme to another of the same mutual fund. These plans can be availed on a monthly/ quarterly basis. Incase one wants to modify/terminate an STP, he/she can do so by submitting a written request 5 days in advance.

Systematic Withdrawal Plan

Systematic Withdrawal Plan is a tax efficient way of receiving regular income. SWP offers the facility of periodic withdrawals of sums from investor’s accounts. The withdrawal / transfer would happen on the date prescribed by the Investment Manager and would be subject to applicable load structures for respective schemes.

No Load Funds

Recently, there has been an introduction of No-Load schemes for investors who invest directly to mutual funds without intervention of a distributor. It is good move if the people are well informed about the market trends and the products available in the market; however since this is not the case, introduction of this scheme is more a point of concern than a relief on account of the following reasons:

• Investors may be lured into schemes by flaashy advertisements and campaigns
• Not all investors are well informed about the products
• Such an option should be given to distributors also who charge for their services and can hence opt for this scheme for their investors/clients
• Investors may not be able to have a clear idea about their needs and hence would not be able to choose a portfolio that best suits their needs as well as their risk appetite