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Mutual funds

What is a mutual fund?

• A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.
• The money thus collected is then invested in capital market instruments such as shares, debentures and other securities.
• The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them.
• Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Every Mutual Fund is managed by a fund manager, who using his investment management skills and necessary research works ensures much better return than what an investor can manage on his own. The capital appreciation and other incomes earned from these investments are passed on to the investors (also known as unit holders) in proportion of the number of units they own.

Types of Mutual Funds Schemes in India





What is SIP / STP / SWP?

Systematic Investment Plan (SIP):

An SIP is a method of investing a fixed sum, on a regular basis, in a mutual fund scheme. It is similar to regular saving schemes like a recurring deposit. An SIP allows one to buy units on a given date each month or quarter, so that one can implement a saving plan for themselves.

Systematic Withdrawal Plan (SWP):

SWP is a smart way to plan for your future needs by withdrawing amounts systematically from your existing portfolio either to reinvest in another portfolio or to meet your expenses. Your savings no longer remain idle. Your money can earn better returns if reinvested, instead of lying idle in a savings account for meeting your regular payments.

Systematic Transfer Plan (STP):

A plan that allows the investor to give a mandate to the fund to periodically and systematically transfer a certain amount from one scheme to another.

Advantages of SIP

Benefits of Systematic Investment Plan

Regular Investment
Systematic Investment Plan is, as the name suggests, regular investment where you invest fixed amounts every month in any of the funds. SIP is a means of investing in a disciplined manner irrespective of the state of the market.

Power of Rupee Cost Averaging
SIP works on the principle of "Rupee Cost Averaging" wherein you invest a fixed amount every month, irrespective of the market movements. In this way, you would buy more units when the market is bearish and take advantage of higher appreciation when the market moves up. Thus, your Average Cost per Unit works out lesser than the Average Price per Unit. Let us look at this more closely through an example.

Months Amount Invested (Rs.) Purchase Price (Rs.) Units Purchased
1. 1,000 10 100.00
2. 1,000 9 111.11
3. 1,000 10 100.00
4. 1,000 11 90.90
Average Cost per unit comes to be Rs. 9.95

SIPs work better, as opposed to one-time investing. This is because of rupee-cost averaging, where an investor typically buys more mutual fund units when prices are low. On the other hand, he will buy fewer mutual fund units when prices are high.

Power of Compounding
The early investor accumulates greater wealth vis-à-vis the investor who comes in later. This is mainly due to a thumb rule of finance called the "Power of Compounding Returns"

As shown in the illustration below, if one starts investing Rs.1,000/- per month at an 8% annual return from the age of 25, then by the age of 60, one would have accumulated Rs. 23,09,175/-. But if one starts investing only from the age of 30, then at age 60, one would accumulate only Rs.15,00,295/-. A headstart of only 5 years results in a 54% larger investment corpus.

Age at entry No. of years of investment Total amount saved (Rs) Value at age 60 (Rs)
25 35 4,20,000 23,09,175
30 30 3,60,000 15,00,295
35 25 3,00,000 9,57,367

Lower Minimum Investment
If you make a one-time investment in a mutual fund scheme, the minimum amount that you have to invest is Rs. 5,000/-. Alternatively, if you invest via an SIP, the amount drops to as low as Rs. 500/- per month.

Convenience / Ease of Investing
It is very easy to invest in SIPs. All you have to do is visit the JM Financial Mutual Fund office in your city. Alternatively, you can approach any office of Karvy Computershare - our registrar and transfer agents, or an AMFI certified Financial Consultant. SIPs can be operated by simply providing post-dated cheques with the completed enrolment form or by giving ECS instructions. The cheques can be banked on the specified dates and the units credited into the investor's account.