What are the modes of Mutual Fund Investments?

Mutual Funds are vehicles made up of the money of several individuals with a similar financial objective. Fund managers invest the money collected from various investors in financial instruments like Stocks, Bonds, and Shares. The Securities and Exchange Board of India, which oversees Mutual Funds in India, believes that such investments are simpler.

Lumpsum Investments – Mutual Fund Investments as lumpsum are the standard investing technique. From the day it is invested until the day it is redeemed, the entire lumpsum earns returns. Significant market corrections might be profitable for strategic lumpsum investments. They can lead to compounding over extended investment periods.

Lumpsum Investments are also preferred for short-term to maximise returns. Lumpsum Investments are typically made in overnight liquid money market funds with ultra-short or low durations.

SIPs - Through a Systematic Investment Plan, you can invest in Mutual Funds consistently, such as monthly, fortnightly, etc. When signing up for a SIP, you can ask the bank for Electronic Clearance Service mandate so that a fixed amount gets automatically debited from your account and invested in the scheme of your choice at the current Net Asset Value.

Investing early with a small sum over a long period and utilising the power of compounding are a few benefits of SIPs.

STPs - Systematic Transfer Plan is another investment method. You can transfer a fixed or variable amount from Tax-Saver Funds to another. You can invest your money in a low-risk debt or money market fund and use STP to withdraw the amount from your debt or money market fund. The payment gets transferred to Equity Funds over several months if you have long-term financial goals while also being concerned about short-term market volatility.

STP for Mutual Funds reduces the volatility effects. The advantage of STP is that Rupee Cost Averaging profiting from market volatility.

SWPs - You can utilise a Mutual Fund Investment technique called the Systematic Withdrawal Plan to periodically remove predetermined amounts from your Mutual Fund. SWP redeems the necessary units at the current NAV to meet your SWP cash-flow requirements. They are operational until you have a unit balance large enough to cover your cash flows.

You get fixed cash flows from your Mutual Fund Investment based on your needs, which is one advantage of SWP. Another benefit of SWP over other income choices like dividends or interest is their tax efficiency