What are the tools for smart investing?
People often have reservations about exploring new avenues when it comes to investing and money management. If investment decisions are backed with the proper knowledge and advice, they can be fruitful. Smart investing need not be experimental all the time. It is also achievable by making optimum use of available resources.
Investment tools like SIP, SWP and STP can help you reach your financial goals and enable smart investing. Keep reading to understand these tools that can be used for smart investing-
What is SIP in Mutual Funds?
A systematic Investment Plan (SIP) is a popular way to invest in Mutual Funds with a fixed amount at regular intervals instead of making a lump-sum investment. It is convenient and can be started with as low as ₹ 100. The frequency of the intervals depends on the SIP you opt for, ranging from daily* to quarterly.
An SIP requires you to invest a fixed sum of money in regular periods at your convenience. A team of professional fund managers are recruited for a nominal cost to manage your investments as disclosed in the Scheme Information Document of the respective Scheme. The scheme's Net Asset Value (NAV) determines the units' allocation.
Investing through SIP provides several advantages compared to lump sum investment (where you invest a significant amount in a single instalment). They include-
Flexible investment plan:
With the liberty to choose how frequently you want to invest, have a structured and disciplined investment journey & healthy financial habits.
Go as low as Rs 100:
You can determine the amount of the investment plan, meaning you can start with as low as ₹ 100 and gradually increase the amount whenever you are ready.
Nominal Management Fee:
A team of professional fund managers invests the money to manage funds. You won't have to worry about the timing or the market fluctuations.
STP refers to a Systematic Transfer Plan. It is an automated way of moving money from one mutual fund to another. This plan is suitable when you want to invest a lump sum amount. The preferred method is to transfer money from debt to an equity fund.
STP works in a very similar manner to SIP. The easiest way to understand STP is to move your SIP from your existing investments in a mutual fund to another mutual fund instead of doing it from your bank account. This transfer occurs periodically, enabling you to gain market advantage by changing to securities when they offer higher returns. The key is to know that STP can be done between the mutual funds of the same fund house (AMC).
STP feature may allow you to earn returns both from the Transferor scheme and the Transferee scheme since the money isn't lying idle till the time it's invested through SIPs.
During high volatility in the stock market, you can transfer the funds through STP into safer investment schemes. This allows you to ensure the safekeeping of your financial resources while earning stable returns simultaneously.
Rupee Cost Averaging
Similar to SIP, rupee cost averaging also applies to STP. Here, you can transfer a fixed amount into your chosen funds regularly. In other words, you invest in the scheme at different price points. Therefore, the purchase prices are averaged out over a period of time.
A systematic transfer plan aims to create a portfolio with a mixture of equity and debt instruments to provide an optimal combination of risk and returns.
Features & Benefits of STP
What is SWP & How does it work?
SWP, or systematic withdrawal plan, is a mutual fund investment plan through which you can withdraw fixed amounts at regular intervals. You can choose a day of the month/quarter/year when a withdrawal can be made and the amount to be credited to your bank account. SWP Plan redeems the mutual fund scheme units at your chosen interval to generate this cash flow.
A systematic withdrawal plan simply allows you to withdraw systematically. You can simultaneously invest in a mutual fund scheme.
There are several benefits gained from SWP. They include-
- Systematic withdrawal of your investments.
- Fixed income at fixed intervals.
- Plan your cash inflows through systematic withdrawals.
- ● Best suited for retirement planning as it allows the withdrawal of fixed amounts at regular intervals.
What is STP & How does it Work?
SIP, STP, and SWP are systematic and strategic investment avenues where you can easily choose to invest, transfer or withdraw, leaving you with much more perks. You can easily bridge the gaps between STP & SWP, SIP & SWP, and understand the perfect match to reach your financial goals.
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Disclaimer: The views expressed herein are based on internal data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The information contained in this document is for general purposes only. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. The information / data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are based on our current views and involve known and unknown risk and uncertainties that could cause actual results, performance, or event to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in the future. LIC Mutual Fund Asset Management Ltd. / LIC Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investment made in the scheme(s). Neither LIC Mutual Fund Asset Management Ltd. and LIC Mutual Fund (the fund) nor any person connected with them, accepts any liability arising from the use of this document. The recipients before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein.
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