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Mutual funds Glossary


A systematic Investment Plan, also known as a SIP, allows you to invest a small sum in your chosen mutual fund scheme at pre-determined intervals. You can invest in Sip with a lump sum, and the amount in a SIP can be as low as RS. 500 per installment in an equity fund. Equity investment via SIP is a convenient, cost-effective, and simple way to accumulate wealth over time. SIPs use the rupee cost averaging principle to normalise the cost of long-term investing.
Using an example to explain

Time Amount paid Price per share Number of share bought
Jan 5000 80 62.5
Feb 5000 96 52.1
Mar 5000 84 59.5
Apr 5000 68 73.5
May 5000 56 89.3
June 5000 60 83.6
July 5000 75 66.7

Total Investment: Rs 35,000
Total number of shares bought: 487.2
Average price per share: Rs 71.83
A systematic withdrawal Plan, also known as a SWP, allows an investor to withdraw funds from an investment on a set schedule. The withdrawal of mutual fund units from his mutual fund scheme can be either fixed or variable. The task can be scheduled every month, quarterly, semi-annually, or annually, depending on the investor's goals and needs. Customizations in systematic withdrawal plans allow you to withdraw only the capital gains on your investment or a set amount. SWP plans are typically used in retirement, where retirees want a consistent, regular income for a long period of time to meet their financial needs.

Benefits of SWP
  • Source of secondary income
  • Keep you capital invested and providing gains to you
  • Helps to keep you in line with financial obligations

Everyone has heard of a Systematic Investment Plan (SIP), but few have heard of a Systematic Transfer Plan (STP). A SIP enables an investor to be dedicated and punctual in his investment objective over time, whereas a STP enables an investor to transfer a fixed amount of funds from a specific scheme to a targeted scheme on a regular basis. Under Systematic investment plan, an investor can transfer funds from one scheme to various other schemes which are being operated by single asset Management Company. This method is commonly used for portfolio rebalancing. Assume you made a one-lakh-rupee investment five to six years ago. Now you believe the market has reached its peak and you wish to be cautious. You believe the market is nearing its peak and you wish to be cautious. You can use a systematic transfer plan to transfer your funds to another targeted scheme while remaining invested in the markets

Types of Systematic transfer plans are as follows
  • Fixed STP
  • Flexi STP
  • Capital Appreciation STP
Benefits of STP
  • Managing risk
    In period of boom time in market, securities are sometime traded at absurd high levels. So as to save gains and manage risk properly STP is very useful in rotating assets
  • Balancing portfolio
    To maintain the composition of once portfolio in long term STP comes very handy. STP helps in transferring and keeping composition intact
  • Rupee cost averaging
  • Earning steady return
  • Higher returns

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