Mutual Fund is a professionally managed investment fund that pools money from many investors to purchase the securities. There are three important aspects we need to know in mutual funds.
- Systematic Investment Plan
- Systematic Withdrawal Plan
- Systematic Transfer Plan
If these three are used in right manner, Investor can avail
lot of benefits and create wealth over the time.
Systematic Investment
Plan: Systematic Investment Plan allows you to invest specific sum of
amount on regular intervals it can be Weekly, Monthly, Quarterly, and Yearly.
In the long time horizon, Disciplined SIP Investments can average the Highs and
lows of the market giving investors the better rupee cost averaging and
compounding.
- Advantages: SIP can be used as a tool to start funding your financial goals and to accumulate wealth. SIP admits to invest small amount, Reduces market volatility, SIP encourages saving money. Investors need not time the market, flexible for investors to select any regular interval.
- Disadvantages: If any SIP is missed because of Insufficient funds in the investor account, Bank may charge the ECS return fee. It is always advised to keep sufficient funds in your savings account.
Systematic Withdrawal
Plan: Systematic Withdrawal Plan is opposite to the Systematic Investment
Plan. SWP is a facility offered by mutual funds to redeem Specific units/Specific
amount at regular intervals. SWP allows the investor to exit the
investments for meeting the short term goals and to meet monthly expenses. SWP
can be availed Monthly, Quarterly and Yearly.
Systematic Withdrawal Plan can be used in distribution phase of life. SWP to create income from the investments for things like, Monthly income after retirement, Surplus Funds parking, Children Education, Pay Emi, Pay Bills etc .
- Advantages: SWP helps to redeem the investment without any exit load up to certain limit. SWP helps to rebalance the portfolio; Investor can avoid Long Term Capital Gain tax up to Rs 1.00 Lakh on gains redeemed amount per financial year. Better rupee cost averaging on the withdrawn amount.
- Disadvantages: Customer may incur exit load charges if the redeemed amount is higher than the free limit. Investor need to maintain minimum funds with the AMC. Investor will get only returns on the invested portion.
Systematic Transfer Plan: Systematic Transfer Plan is an automated process of moving funds from one fund to another fund. STP helps to mitigate the risk associated and help to deploy money in different funds. When Investor wants to Split the Lump sum credit in one fund to several funds, STP helps to transfer money in various asset classes like equity and Debt.
- Advantages: STP will help you to mitigate the risk wisely and Investor can regularly transfer from high risk exposure to low risk exposure based on risk appetite and age of Investor. Steady Returns and Fixed Income can be generated via STP. Reallocation and Rebalancing of funds can be done using STP
- Disadvantages: Investor may incur Exit load on transfer of funds. Investor needs to maintain minimum investment prescribed by AMC. Debt funds transferred before 3 years attract STCG Tax.
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