Different Ways of Investing in Mutual Funds
- 25 May 2016 | 407 Views | By Mint2Save
While the young Indian investors have been pouring money into equity mutual funds, the seniors do find solace when their savings reap a good return via debt funds. Suiting every requirement of the Indian Investor, mutual funds are undoubtedly one of the few investment vehicles that can be very flexible. A very interesting feature of the mutual funds in terms of investment and withdrawal is the customisable manner of both. Let’s find out about the ways in which funds can be invested in a mutual fund.
- Lump sum: Investment As the term suggests, lump sum is one of the most popular way of investing anywhere. The reason to it being popular is “simplicity”. Just select a mutual fund, write down a cheque and there you go! Invested for the number of mutual fund units you purchased with the cheque.
- Systematic Investment Plan: Widely marketed and campaigned in a humongous manner by almost all mutual fund houses as a plan to get rich or a source for second income, systematic investment plan is the door to the equity for the common man. Keeping ones investment plan under his savings budget, SIP brings in the idea of Rupee Cost Averaging. RCA makes investing as easy as a recurring deposit. The two differences when compared to RD: higher risk and better returns. In systematic investment plans, the budget of investing is fixed at a particular amount, which is usually a round figure. The number of mutual fund units purchased is limited specifically to the amount of SIP.
3. Systematic transfer plans or STP is also a USP of mutual funds which is less known as it exists for only those who have already invested in mutual funds. Under a systematic transfer plan, an investor can switch systematically (in terms of fixed amount) from one mutual fund scheme to other.
For example, at beginning of the new financial year, you have invested Rs.1 lac in a debt mutual fund scheme. However, your ultimate aim with this fund is to put it in an ELSS based mutual fund (tax saver scheme). So, you can avail a systematic transfer plan where a fixed sum is transferred from your debt fund to a tax saver at regular intervals. In this manner, you not only ultimately invest in the tax saver fund, but also gain the returns which you can utilise to invest further in the tax saver or spend anywhere.
4. Systematic Withdrawal Plan: This investment plan is a wise design idea for the retired who get a lump sum at the time of superannuation. Designing spend pattern, one can keep their immediate spendings in a liquid (debt) mutual fund and at regular intervals, withdraw a certain amount of sum for regular necessities. In this manner, the funds would reap a higher interest and would serve the purpose too. A lot of financial advisors do regard systematic withdrawal plans as a mandatory for the retiring and ones living on the royalties of their work.
Indian Mutual Fund has seen an enormous growth in the recent years. It has also become one of the most preferred investment avenues for the youth and even the fund houses are working hard to present their product in such a manner that it addresses all the financial needs. As a result we have seen mutual funds being launched as tax savers, fixed deposit and recurring deposit alternatives and capital appreciation products. Adding to their diversity is the way in which one can invest in them. Having discussed the four popular ways is not the limit of investing manner. There would be more products and more customisable investment ways.