You don’t have to tell anyone these days that mutual funds (MFs) are the most convenient form of investing, especially for small or individual investors. However, when it comes to options available within MFs—for example, systematic withdrawal or systematic transfer—most people would plead ignorance. Its the same with trigger option available with mutual funds.
However, most people would be somewhat familiar with systematic investment plan or SIP, thanks to the publicity given by most financial experts . “It is true that most of our clients are familiar with the concept of SIP, but the others are yet to catch up in a big way,’’ informs Suresh Sadagopan, chief financial planner, Ladder7 Financial Advisories. Let us start with Systematic investment plan or SIP.
For those who came in late, SIP is very similar to a regular recurring deposit in a bank account. You draw a cheque in favour of a particular MF scheme and specify you want to invest for, say, next 12 months. The money will be taken from your bank account every month and invested in the scheme of your choice.
Why is this method preferred by financial experts? One, this gives you discipline. Two, you wouldn’t be unnecessarily influenced by stock market movement, and stop or increase your investments. Three, you would benefit from cost averaging. That is, when you buy MF units at regular intervals, the average purchasing cost could give higher returns.
However, most people would be somewhat familiar with systematic investment plan or SIP, thanks to the publicity given by most financial experts . “It is true that most of our clients are familiar with the concept of SIP, but the others are yet to catch up in a big way,’’ informs Suresh Sadagopan, chief financial planner, Ladder7 Financial Advisories. Let us start with Systematic investment plan or SIP.
For those who came in late, SIP is very similar to a regular recurring deposit in a bank account. You draw a cheque in favour of a particular MF scheme and specify you want to invest for, say, next 12 months. The money will be taken from your bank account every month and invested in the scheme of your choice.
Why is this method preferred by financial experts? One, this gives you discipline. Two, you wouldn’t be unnecessarily influenced by stock market movement, and stop or increase your investments. Three, you would benefit from cost averaging. That is, when you buy MF units at regular intervals, the average purchasing cost could give higher returns.
Systematic investment plan can be used by any investor eyeing the market in a particular period of time. However, it is not the case with systematic withdrawal or transfer plan or using triggers. These tools would work only for a particular class of investors. “Systematic withdrawal plans are useful for particularly retired people, whereas systematic transfer plans are useful for people with large amount, but don’t want to invest in the market at one go,’’ says Suresh Sadagopan.
Systematic transfer plan allows an investor to withdraw a certain sum from the scheme at periodical intervals. “It is often used somewhat like annuity by retired people. However, the concept is yet to take off,’’ says a MF investor. Systematic transfer plans, on the other hand, is useful for investors who suddenly find themselves flush with funds.
Systematic transfer plan allows an investor to withdraw a certain sum from the scheme at periodical intervals. “It is often used somewhat like annuity by retired people. However, the concept is yet to take off,’’ says a MF investor. Systematic transfer plans, on the other hand, is useful for investors who suddenly find themselves flush with funds.
Since it is not considered wise to invest in the market in lump sum, especially when it is up or volatile, they can park the money in a debt scheme and transfer a particular amount over period of time to an equity scheme of their choice. “It is a good option, which investors should make use of,’’ says Sadagopan.
Triggers, on the other hand, is the latest tool offered by a few mutual funds to risk averse investors . For example, if an investor is looking for 10% returns from his investment in a year, he can set the trigger at that particular point. He would have the option of either transferring his return or the entire investment to a safer (read debt) avenue once he gets 10% returns . “But it can also rob them of a chance to make more money from the market. Also, they have to be very clear whether they want to transfer the returns or the entire investment,’’ says an MF advisor.
Triggers, on the other hand, is the latest tool offered by a few mutual funds to risk averse investors . For example, if an investor is looking for 10% returns from his investment in a year, he can set the trigger at that particular point. He would have the option of either transferring his return or the entire investment to a safer (read debt) avenue once he gets 10% returns . “But it can also rob them of a chance to make more money from the market. Also, they have to be very clear whether they want to transfer the returns or the entire investment,’’ says an MF advisor.
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