Double your profit with these tips on modes of investing in mutual fund

While mutual funds offer various modes of investing, one should preferably consider his or her convenience while investing in mutual funds. Some of the key modes of investment offered by mutual funds are:
Lump Sum or One Time Investment (…If you have a big sum of say Rs 1 lakh in your bank account and are looking to invest it in mutual funds at one go, then you can consider investing via lump sum mode. But beware! Investing all your money at one point may call for market risk. And so to reduce this risk, there is an option called…)
Systematic Investment Plan (SIP) (…SIP can help you invest your money gradually every month or quarter. Where you can instruct the mutual fund to buy units of the scheme in your folio, by debiting a fixed amount from your bank account every month or quarter. But do not forget, that the balance money lying in your bank’s savings account may continue to earn a lower rate of return. So what can be a better option, to increase returns on your money lying idle? Well, mutual funds offer an opportunity to invest regularly while providing an opportunity to earn better returns on your idle money, though…)
Systematic Transfer Plan (STP) (…STP is a mode of investing, where you initially park your entire Rs 1 lakh in a less risky category of the mutual fund such as a liquid scheme, and then systematically transfer money on a regular basis from the liquid scheme to an equity fund or any other mutual fund scheme of the same fund house. So, while you are able to invest your money on a regular basis, the liquid scheme provides you an opportunity to earn returns better than your bank’s savings account.)
Lump Sum or One Time Investment

Lump Sum Mode helps Invest all your Investible surplus at one go (…Even if you have a large corpus to invest, you can invest all your money in a mutual fund through a single transaction. But as we mentioned earlier…)
Lump Sum Investment attracts market risk (…so you need to be careful. You should invest in a lump sum only if you have an appetite for higher risk as chances are high that, you may see your investments in the negative for some time. Ideally while investing in a lump sum, you should have a longer time horizon. Or, on a cautious note, if you have a short-term horizon, then you should invest your lump sum money in less risky options like liquid funds.)
LumpSum Investment can be rewarding only if the long-term trend of the economy is positive (…you see, the impact of near-term market volatility may fade over time.)
(…So we can say that lump-sum investment is…) More suitable if you are ready to take High Risk in anticipation of High Return (…or are willing to compromise on the returns by parking your entire surplus in Low-Risk option such as liquid funds)
(Also as there is a single transaction, …) You can make your Investment via a Single Cheque (…You need not write multiple cheques or fill any additional forms. So if you have to say Rs 1 Lakh to invest, you can make a lump-sum investment by writing a single cheque of Rs 1 Lakh in favor of the mutual fund scheme and submit it along with the application form.)

SYSTEMATIC INVESTMENT PLAN

Systematic Investment Plan (SIP) is nothing but the small amount of money invested on a pre-set date every month into specific mutual fund/funds. One of the best ways of entering equity market is through Systematic Investment Plans (SIPs) in equity mutual funds, as it brings in an investment discipline for the investor. SIPs help to achieve financial goals by investing small sums of money on a monthly basis that eventually leads to accumulating the required corpus for reaching the goal.
For some investors who are afraid of long-term commitments like PPF or Insurance plan, SIPs are the answer. They are flexible:
1.SIPs are done in open-ended funds where the investors can invest and take out the money anytime
2.There is no fixed tenor for running SIP. Once the SIP tenor is fixed, it can be stopped in between or could be continued even after the tenor by placing the request with respective mutual fund company
3.Full and partial withdrawal is possible during or after the SIP tenorThe SIP amount can be increased or decreased
4.The SIP amount can be increased or decreased
Just because SIPs are flexible doesn’t mean that the investment horizon could be shorter. Ideally, to reap the benefits of SIPs, the investment horizon should be for a longer term. Longer the investment horizon, better the wealth accumulation.

SIPs provide you the benefit of Rupee Cost Averaging (…Through SIP, you invest a fixed amount every month, irrespective of the market movements. As the investment happens on a regular basis, you get an opportunity to invest at various market levels. So when the markets fall, you buy more units with the same amount; while if the market trends higher, you buy fewer units and simultaneously the value of your existing units grow. So in the long run, your cost of buying is averaged out and your Average Cost per Unit may work out to be lesser than the Average Price per Unit.)

Systematic Transfer Plan (STP)

n STP enables an investor to transfer money from one mutual fund scheme to another within the same AMC. Investments are not withdrawn completely at one go but systematically transferred (or switched) between different asset classes, for example, from debt to equity.
The AMC provides various options which determine the amount and frequency of transfer of funds. Units from the source fund are sold and the proceeds are used to buy units in the target fund.
What are the types of STPs?
STPs are offered in three variants – fixed, capital appreciation and swing.
In a fixed STP, predetermined amounts are regularly transferred from the source scheme to the target scheme. Let’s assume that an investor has invested Rs 1 lakh in an equity scheme, and wants to transfer Rs 20,000 to a debt scheme every month as suggested by the chapter 13 bankruptcy lawyers. If the NAV for the debt scheme is Rs 100 in the 1stmonth, the investor will be allotted 200 units of the debt scheme. If the NAV of the debt scheme falls to Rs 50 in the next month, the investor will get 400 units. The transfer continues until all the units in the source scheme are transferred to the target fund.
In a capital appreciation STP, only capital gains (a percentage or the entire profit margin, as per the investor’s choice) are transferred to the target scheme. However, this option is only available with growth plans and not with dividend payout schemes. Assume that an investor has invested Rs 1 lakh in an equity fund with a NAV of Rs 100. This gives the investor 1,000 units. If the NAV goes up by Rs 20, and the investor wants a transfer of 50% of the capital gains, Rs 10,000 will be transferred to the target fund.
SYSTEMATIC WITHDRAWAL PLAN

Systematic Withdrawal Plan (SWP), is a reverse of SIP where investors withdraw their money invested in existing mutual fund portfolio at predetermined intervals – monthly, quarterly, annually or semi-annually. An investor can choose withdrawal interval based on there to need.
Investors who have a sizeable amount of investments in MF and want to have a steady income can opt for SWP or can redeem his units himself. With SWP, an investor can withdraw his funds in a systematic manner either for cash or for reinvestment.
How Does A Systematic Withdrawal Plan (SWP) Work?
When you want to sell your MF you get two options either sell all at once or opt for a systematic withdrawal plan. In SWP, you instruct the mutual fund company that you want to withdraw a fixed sum of money every month or quarter.
As per your instructions the MF company will redeem an equivalent amount of mutual funds from your account as per the prevailing Net Asset Value (NAV). This process helps the investor to get a fixed amount of money every month or quarter.
Let us take an example to understand this process in detail:-
Let’s say you have 5,000 units in an MF scheme. You have given instructions to the fund house that you want to withdraw Rs. 8,000 every month through SWP.
How Does A Systematic Withdrawal Plan (SWP) Work?
When you want to sell your MF you get two options either sell all at once or opt for a systematic withdrawal plan. In SWP, you instruct the mutual fund company that you want to withdraw a fixed sum of money every month or quarter.
As per your instructions the MF company will redeem an equivalent amount of mutual funds from your account as per the prevailing Net Asset Value (NAV). This process helps the investor to get a fixed amount of money every month or quarter.
Let’s take an example to understand this process in detail:-
Let’s say you have 5,000 units in an MF scheme. You have given instructions to the fund house that you want to withdraw Rs. 8,000 every month through SWP.
400 units would be redeemed i.e. sell off from your MF holdings, and Rs. 8,000 would be given to you.
Your remaining units = 5,000 – 400 = 4600
Now, on 1 February, the NAV is Rs. 16. Thus,
Equivalent number of units = Rs. 8,000 / Rs. 18 = 500
500 units would be redeemed from your MF holdings and Rs. 8,000 would be given to you.
Your remaining units = 4600 – 500 = 4100
Under SWP, Withdrawals can be fixed or variable amounts at regular intervals. These withdrawals can be made on a monthly, quarterly, semi-annual or annual schedule.

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