modes of investing in mutual funds · c. systematic investment plan d. none of the above none of...

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Modes of Investing in Mutual Funds

An Investor Education & Awareness Initiative By Franklin Templeton Mutual Fund


Popular Modes of Investing in a Mutual Fund

1

Lump Sum or One Time Investment

Systematic Investment Plan (SIP)

Systematic Transfer Plan (STP)


• Lump Sum Mode helps invest all your investible surplus at one go

• Lump Sum investment attracts market risk

• Lump Sum investment can be rewarding only if the long term trend of the economy is

positive

• Suitable if you are ready to take High Risk for High Return or are willing to compromise

on the returns by parking your entire surplus in Low Risk option such as liquid funds

Lump Sum or One Time Investment

2


• SIP is a disciplined Mode of Investment

• You can start SIP with a lower investment amount

• SIP can help you steadily build a corpus over time

• SIPs provide you the benefit of Rupee Cost Averaging

• You can start your SIP with a One-Time Instruction

Systematic Investment Plan (SIP)

3


SIP Vs Lump Sum

4

Month

S&P BSE

Sensex

A

Systematic Investment Plan Lump-Sum

Investment Amt. (Rs)

B

Units

B / A

Market Value

(Rs)

(Total Units* A)

Investment Amt.

(Rs)

C

Units

C / A

Market Value (Rs)

(No. of Units * Index)

15-Jan-2013 19,987 10,000 0.50 10,000 120,000 6.00 120,000

15-Feb-2013 19,468 10,000 0.51 19,740

15-Mar-2013 19,428 10,000 0.51 29,700

15-Apr-2013 18,358 10,000 0.54 38,064

15-May-2013 20,213 10,000 0.49 51,910

17-Jun-2013 19,326 10,000 0.52 59,632

15-Jul-2013 20,034 10,000 0.50 71,817

16-Aug-2013 18,598 10,000 0.54 76,669

16-Sep-2013 19,742 10,000 0.51 91,385

15-Oct-2013 20,548 10,000 0.49 105,116

18-Nov-2013 20,851 10,000 0.48 116,666

16-Dec-2013 20,660 10,000 0.48 125,598

15-Jan-2014 21,289 Total = 120,000 Total = 6.08 129,421 120,000 6.00 127,817

Returns 14.80% * 6.51%^

The example is for illustration purposes only

* XIRR Method

^ Point to point returns Data Source – CRISIL MF Research Tool


• STP helps in gradually investing a large corpus in a selected asset class

• STP is a relatively safer investment method than lump sum investment and may

prove to be a higher yielding method than SIP investment. STPs can be a smart

financial planning tool.

• STPs provide you with the benefit of Rupee Cost Averaging

• You can start your STP with a Single Mandate

Systematic Transfer Plan (STP)

5


How an STP works?

6

Month

Opening Balance

in Liquid Fund(Rs)

A

Transfer to

Equity Fund (Rs)

B

Closing Balance in

Liquid Fund (Rs)

A-B

Return from Liquid

Fund @ 7% p.a.(Rs)*

Return from Equity

Fund @ 12%

p.a.(Rs)^

C

Final Value of

each Transfer(Rs)

B+C

Total Value of

Investment(Rs)

1 120,000 10,000 110,000 642 1,268 11,268 -

2 110,642 10,000 100,642 587 1,157 11,157 -

3 101,229 10,000 91,229 532 1,046 11,046 -

4 91,761 10,000 81,761 477 937 10,937 -

5 82,238 10,000 72,238 421 829 10,829 -

6 72,659 10,000 62,659 366 721 10,721 -

7 63,025 10,000 53,025 309 615 10,615 -

8 53,334 10,000 43,334 253 510 10,510 -

9 43,587 10,000 33,587 196 406 10,406 -

10 33,783 10,000 23,783 139 303 10,303 -

11 23,922 10,000 13,922 81 201 10,201 -

12 14,003 10,000 4,003 23 100 10,100 -

Total 120,000 4,026 (D) 8,093 128,093 (E) 132,119 (D+E)

* Monthly Return, ^ Return over 12 months compounded monthly

Data Source – CRISIL MF Research Tool


• VIP aims to invest more when the markets are low and invest

less when the markets are high

• A target investment amount that has to be achieved monthly

needs to be set

• VIP helps one to lower the Cost of Purchase of units more

effectively than SIP

• VIP may be suitable for investors who are ready to invest

different amounts each month

• Only a few mutual fund houses offer this facility

Value Averaging Investment Plan (VIP)

7


SIP vs. VIP in same scheme

8

Month S&P BSE Sensex

A

Systematic Investment Plan Value Averaging Investment Plan

Investment Amt. (Rs)

B

Units (B / A)

Market Value (Rs)

(Total Units * A)

Target Market Value (Rs)

Net Units bought to achieve target

value C

Amount Invested (Rs)

(C * A)

Value of Investment in the

next month

15-Jan-2013 19,987 10,000 0.50 10,000 10,000 0.50 10,000 -

15-Feb-2013 19,468 10,000 0.51 19,740 20,000 0.53 10,260 9,740

15-Mar-2013 19,428 10,000 0.51 29,700 30,000 0.52 10,041 19,959

15-Apr-2013 18,358 10,000 0.54 38,064 40,000 0.63 11,652 28,348

15-May-2013 20,213 10,000 0.49 51,910 50,000 0.29 5,958 44,042

17-Jun-2013 19,326 10,000 0.52 59,632 60,000 0.63 12,194 47,806

15-Jul-2013 20,034 10,000 0.50 71,817 70,000 0.39 7,802 62,198

16-Aug-2013 18,598 10,000 0.54 76,669 80,000 0.81 15,017 64,983

16-Sep-2013 19,742 10,000 0.51 91,385 90,000 0.26 5,079 84,921

15-Oct-2013 20,548 10,000 0.49 105,116 100,000 0.31 6,326 93,674

18-Nov-2013 20,851 10,000 0.48 116,666 110,000 0.41 8,525 101,475

16-Dec-2013 20,660 10,000 0.48 125,598 120,000 0.53 11,008 108,992

15-Jan-2014 21,289 120,000 (Total) 6.08 (Total) 129,421 123,689 5.81 113,862

Gain/Loss 9,421 9,827

Returns (XIRR) 14.80% 15.84%

Data Source – CRISIL MF Research Tool


• VTP is similar to VIP in terms of the concept of investment

• Like VIP, VTP too helps one Invest by flexibly transferring more money in the scheme

when the markets are low and less money when the markets are high

• The targeted amount and returns of the scheme are considered for arriving at the amount

of subsequent transfers

• VTP may not be suitable for novice investors

Value Averaging Transfer Plan (VTP)

9


• Dividend Transfer Plan as a concept works similar to Dividend

Reinvestment Plan

• Through DTP one can choose to reinvest the Dividend Income either

from a Debt Scheme to an Equity Scheme or from an Equity Scheme to

a Debt Scheme

• The reinvestment of the Dividend Income can be done in another

scheme but from the same fund house

Dividend Transfer Plan (DTP)

10


• SWP helps Systematically Withdraw money from pre-invested mutual fund scheme on a regular basis to meet

the ongoing expenses of the investor

• The money withdrawn through SWP can be credited to the bank account of the investor

• SWP offers ‘Fixed Withdrawal’ as well as ‘Appreciation Withdrawal’ facility

• SWP can help manage regular expenses without keeping the savings idle

Systematic Withdrawal Plan (SWP)

11


Points to Remember…

12

• Lump sum investment attracts market risk and can only be rewarding if the long term trend of the market is positive

• Systematic Investment Plan or SIP helps develop disciplined investment strategy irrespective of the market condition

• SIPs can help you steadily build wealth over time

• SIPs provide you with the benefit of Rupee Cost Averaging

• Systematic Transfer Plan (STP) is a relatively safer investment method than Lump sum investment

• Value Averaging Investment Plan helps investors invest more when the markets are low and invest less when the markets are high


Points to Remember…

13

• Value Averaging Transfer Plan too helps one Invest by flexibly transferring more money from one scheme to another when the markets are low and less money when the markets are high

• Dividend Transfer Plan can help reinvest the Dividend Income from one scheme to another scheme

• Systematic Withdrawal Plan (SWP)helps systematically withdraw a fixed amount of money from a pre-invested scheme to meet ongoing expenses of the investor


We now invite you to test your learning betaking up this simple quiz

And win exciting prizes!

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1) __________ helps develop disciplined investment strategy and is a smart financial planning

tool.

A. Lump-Sum B. Systematic Withdrawal Plan

C. Systematic Investment Plan D. None of the above

2) Value Averaging Investment Plan aims to invest less when the markets are low and invest

more when the markets are high.

A. True

B. False

3) Systematic Withdrawal Plan helps ____________ money from the scheme

A. Invest B. withdraw

C. Transfer D. Save

Quick Quiz

16

For Answers, refer next slide


4) Dividend Transfer Plan as a concept works similar to ______________

A. Investment Plan B. Dividend Pay-out Plan

C. Growth D. Dividend Reinvestment Plan

5) SIP provides investors with the benefit of Rupee Cost Averaging.

A. True

B. False

Quick Quiz

17

Answers 1-C 2-B 3-B 4-D 5-A



Mutual Fund Investments Are Subject

To Market Risks, Read All Scheme

Related Documents Carefully.

18



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