What is Systematic Investment Plans (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.
What is Systematic Transfer Plan (STP)?
A Systematic Transfer Plan (STP) is an investment facility that allows you to transfer a fixed amount of money at regular intervals from one mutual fund scheme to another. It is typically used to gradually move funds from a low-risk debt fund to a higher-growth equity fund. Instead of investing a lump sum directly into the market, STP helps spread your investment over time, reducing the impact of market volatility while ensuring your money remains actively invested.
Why Choose STP?
STP is an effective way to manage market risk while investing a lump sum amount. By transferring funds in a phased manner, it helps reduce the chances of entering the market at an unfavorable time and allows you to benefit from rupee cost averaging. At the same time, your untransferred balance continues to earn returns in the source fund, ensuring efficient utilization of your money. This disciplined and automated approach makes STP a suitable choice for investors looking to gradually transition into equity markets while maintaining a balanced risk and return strategy.
What is Systematic Withdrawal Plan (SWP)?
Smart investment solution for cash flow needs and wealth creation. In a normal SWP, generally investors can withdraw a fixed amount at a fixed frequency from their investments. However, we can try another innovative way of doing SWP You can call it SWP with Annual increase.
The concept is that you can decide to increase the SWP amount annually by a certain percentage / or by increasing the fixed amount. This helps you get higher regular cash flow which helps you keep pace with the increasing inflation. But most of the AMCs do not provide this facility through a standard product. Therefore, if you want to use this innovative option, you should give SWP mandate annually by increasing the amount to the extent you want.
Which Are the Best Mutual Funds for SWP Based Performance?
However, whether you want to opt for a normal SWP or SWP with annual increase, the key is to select the good performing funds. Best SWP in Mutual Fund research tool helps you in that. Here we have back tested the SWP results of all the schemes in a category and picked the best SWP funds basis the returns generated in the selected period post withdrawal of the SWP amount. You can check the best SWP Funds by selecting the scheme category that you want to invest in and start SWP, select from and to period and provide the lump sum and fixed withdrawal amounts along with the SWP frequency. You will see the results with scheme names in order of highest to lowest returns. This helps you know which scheme/s did well in the past in the category chosen by you. However, investors should note that past performance of mutual funds are no guarantee or assurance for future returns.
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