26 Aug The “3S” of Mutual Fund
Systematic investment plan (SIP) allows you to choose a fixed amount of money to invest on a fixed date every month, for a certain period in a mutual fund scheme. The amount is auto-debited from your account on that date and is invested in the pre-specified scheme. SIP by itself does not carry any charges. SIP is best suited for inculcating the habit of regular savings for long-term goals and works well for salaried individuals.
A SIP or Systematic Investment Plan is one of the best ways to invest money. SIP’s start the process of wealth creation where a small amount of money are invested over regular intervals of time and this investment being invested in the stock market generates returns over time.
SIP’s are usually considered to be a good way to invest money since the investment is spread out over time, unlike a lump sum investment which takes place all at once. The amount required for starting a SIP can be as low as INR 500, thus making SIP’s a great tool for smart investments, where one can start investing small amounts from a young age. SIP’s are widely used for making investments and meeting financial goals. Whether it’s buying a house, car, any asset, retirement planning or higher education planning, SIPs offer a very systematic way to save money and reach these goals. Market fluctuations or volatility affects lump sum investments, SIP’s usually benefit from the same via cost averaging, benefiting the investor in the long run.
SYSTEMATIC WITHDRAWAL PLAN (SWP) SWP is used to make recurring withdrawals from your mutual fund investments. A fixed amount of money is withdrawn from your investments on a fixed date and is deposited in your bank account linked to the investments. You first have to invest a lump sum in a mutual fund scheme and set a withdrawal mandate of a fixed amount from that investment. You can withdraw the amount from your investments either monthly or quarterly. Your existing investment keeps generating returns. It works when you don’t have a regular source of income. SWP can be used to create a monthly pension from your retirement corpus.
An SWP or Systematic Withdrawal Plan is the buzzword among retirees these days. Many investment consultants and mutual fund advisors are recommending SWP to retired folks as the best way to draw a regular income from their mutual fund investments.
Bandhan SWP is a Systematic Withdrawal Plan (SWP) facility which allows you to withdraw a fixed amount regularly from your existing investments in eligible open-ended mutual fund schemes. The amount can be directly credited to the bank account of your spouse, parents, children or siblings, thus allowing you to give financial support to your loved ones in a seamless and hassle-free way.
The insatiable desire to make a constant difference to the lives and well-being, of your loved one. To constantly see them grow and prosper before our eyes. And above all, to stand up for those with whom we share the closest bonds; of love, companionship and togetherness. Bandhan SWP, a family solutions makes a difference in life for those who matter the most to us.
SYSTEMATIC TRANSFER PLAN (STP)
“You can think of STP as a combination of SWP and SIP. If you have your savings in a lump sum and do not want to enter the markets in a jiffy, then STP is a good option for you. STP involves giving consent to a mutual fund to periodically withdraw a certain amount or redeem certain units and invest the proceeds in another scheme of the same fund house. Generally, investors park their lump sum amount in a liquid fund and register an STP to an equity fund of that scheme.
Unlike SIP, Systematic Transfer Plan may not be a term many investors are aware of. While SIP is the transfer of money from savings to a mutual fund plan, STP means transferring money from one mutual fund to another.
STP is a smart strategy to stagger your investment over a specific term to reduce risks and balance returns. For instance, if you invest ‘systematically’ in equities, you can earn risk-free returns even during volatile market scenarios. Here, an AMC permits you to put a lump sum in one fund, and transfer a fixed amount to another scheme regularly. The former fund is called source scheme or transferor scheme, and the latter is called target scheme or destination scheme.
STP is an effective tool in mutual funds to average your investment over a specific period. To decide on whether one should do an STP or lumpsum depends on three factors – an investor’s current allocation to equities, the risk profile of investor and finally the market view.