So,as in the last blog i have written about mutual funds,its types etc. Now,i am gonna tell you some of its advantages that will surely benefits you and i will also write about what is sip,its advantages,swp,how it works and its advantages.All these things will be helpful for your decision regarding investment in mutual funds and also it will make you understand more about the pros and cons of mutual funds.

Reduction of risk through diversification

• We can reduce our risk by investing in different securities across different sectors,if your investments in one sector is down then your investments in other sector will compensate it and you can also invest in goverment bond which is a risk free investment option where your money is safe.

• If you invest in goverment bond it will protects you from a precipitous drop in stocks.

Managed by professionals

• The money you invests in mutual funds is managed by a professional who have a deep knowledge in investment domain and also having better availability to research materials about the market and companies

• He also know some money making strategy because of his experience you can trust him that he can take better investment decision for you which will further reduces risk

liquidity

Another advantage is the liquidity,which you get if you invests in mutual funds unlike stocks where it will take 2-3 days to get funds into your bank account whereas it is easier to buy and exit mutual fund scheme.

Low cost

If you buy more units of mutual funds then then processing fee and other charges will be reduce because of economies of scale which implies that if you buy more units then the marginal cost of per unit will be reduced for example if you one banana it costs you more but if buy a dozen then it will cost you less.

BETTER RETURN

Well there are other investment option also but if compare MFs to other financial products like FDs,nps then you definitely get a better return option here while the risk is always there but the risk is manageable because if you want to earn some extra bucks then you must invest in mutual funds.

FLEXIBLE AND CONVENIENT

• Mutual funds are one of the most flexible investment option for people because almost everyone can avail the benefits of it,due to the fact that anyone can start sip with the minimal amount of 500 rupees it is accessible to all so anyone according to their income level can invest in mutual funds

• It is also easy to use or convenient for people to invest in mutual funds due to the advancement of technology there are many apps through which you invest directly in mf at anytime from anywhere

SYSTEMATIC INVESTMENT PLAN(SIP)

SIPs are being popular post demonatization period and also Amfi’s Mutual Fund Sahi Hai campaign also helped popularising the concept of SIP and mutual funds.There are 2 ways you can invest money in mutual funds either through lumpsum or through SIPs,

In lumpsum, you invest a fixed amount only once and then you get return over it annually where as in SIP you invest a fixed amount regularly which is generally monthly and quarterly.So lets finds what exactly a sip is

SIP is a plan in which you can invest a fixed amount at regular intervals, generally monthly and quarterly,you can start sip with as low as 500 rupees and there is no maximum limit unless specifies

Why choose SIP

• Through sip you can invest a fixed amount at regular intervals which means you can create wealth with small amounts
• It gives you better return as compared to other investments like FDs,
• You can start sip with a small amount of 500 rupees
• you don’t need to research and analyse much as your investment is managed by professional who can do this work for you yet you have to analyse before investing in particular MF.
• you can enjoy the power of compounding. When you invest over a long period and earn returns on the returns earned by your investment, your money would start compounding. This helps you to build a large corpus that help you to achieve your long-term financial goals with regular small investments.

SYSTEMATIC WITHDRAWAL PLAN

It is an investment plan in which one can withdraw a fixed amount at regular intervals which is generally pre determined date of month,it can be monthly,quarterly,semi-annually or annually.This facility is given by mutual funds to redeem fixed units at regular intervals

Retirees are most often reliant on SWPs for retirement income generated from investments accumulated in retirement accounts like IRAs or 401(k) plans

When you choose to use swp you need to aware of that your overall mutual funds value will be affected too because the nav(net asset value) will affect your overall value and withdrawal units of mutual funds.

HOW IT WORKS

if an investor bought 10000 units of mutual funds at the nav 10 rupees and wants to receive 10,000 rupees monthly than after receiving10,000 for the first month the remaining units held at investor is 9,000(10,000-1,000) while the NAV is 10. Now suppose the NAV is increase to 20 then the overall units held by investor after receiving 10,000 rupees in a second row is 8,500(9,000-500) because your nav has increased your units sold has been decreased which is good for you but the situation can fall opposite if your nav will decrease or reduced.

There are two withdrawal options available in SWP – Fixed Periodic withdrawal and Appreciation withdrawal.

Fixed Periodic withdrawal

In a fixed periodic withdrawal, an investor chooses a fixed amount to receive after interval specific time. Mutual fund house will sell units and transfer the amount in the investor’s account.

Appreciation Withdrawal

In appreciation withdrawal, an investor chooses to withdraw only the return generated on his corpus. For example, if an investor has a corpus of Rs 10cr in a mutual fund and the fund has given a return of 1% in last one month then he will only get Rs 10lakh for that month. Therefore, an investor can create a perpetuity using appreciation withdrawal; however the cash flow will not be same as returns are not fixed.

WHY TO CHOOSE SWP

• The first benefit of this plan is you get a regular income on monthly basis,if you are retired person then it would be suitable for you to manage your daily expenses
• swp creates an additional way of regular income for you
• It helps you to meet your financial needs like .If you have a recurring expenses like house emi or car emi or child’s fees then you can use this plan and the return generated on your income will be spent on your these expenses.
• these withdrawals, which are also referred to as redemptions, are not subject to tax deduction at source(TDS).