De-Jargon SIP, STP and SWP
Net Asset Value
NAV stands for Net Asset Value. Generally, the “net” arrives only when you remove the cost incurred from the price.
For example: Imagine there are 100 investors and each invested Rs 1,000 in an Equity fund. Each unit price will be Rs 10. Then the sum of Rs 1 lakh is invested in various stocks of mutual funds. A year later the value of Rs 1 lakh will be turned out to Rs 1.5 lakhs, giving a profit of Rs 50k. If the cost of 10k is removed, then the profit earned is 40k. Then, the unit price will go from Rs 10 to Rs 14. Now, your 100 units worth is Rs 1.400.
- Investors can access the performance of the fund through the NAV differentials.
- NAV helps to identify potential investment opportunities.
- One can also use NAV to view the holdings in their portfolio.
Systematic Investment Plan
Why everybody is talking about SIP? What’s this cool new thing that you should know about.
SIP is a Systematic Investment Plan. This is the same as your Recurring deposits where you make periodic investments into mutual funds. Fixed money will be deducted from your bank savings account and will be directed towards the mutual fund for which you have opted for.
The two things which are good about SIP:
- Some people make a target for saving in SIP and spend the rest. Thus it’s very useful in building the habit of regular investment.
- SIP allows you to average out your price as you invest over the years, either monthly or quarterly.
- Also, SIP helps in reducing the risk of the market as it spreads the money throughout the various market cycle.
How SIP is different from a one-time investment:
|SIP||One- time investment|
|Periodic investment||Lump sum investment|
|Earns better even when markets are low||Earns when markets are high|
|Protect investment from a market crash||Investments will be affected due to the market crash|
Remember, Systematic Investment Plan is a vehicle, not a goal, you use a SIP to make investments and you can choose to have financial adviser if needed.
You can start investing in SIP with just Rs 100. Here, you have the best investment platform- Finity.
STP- Systematic Transfer Plan:
Investors worry about making lump sum investments because of risk appetite. This is where STP helps you to mitigate the risk. In SIP, you will move your money from saving to a mutual fund whereas, in STP, you will move your money from one fund to another. Instead of investing all in one go, you can put money in a liquid fund and set up a monthly/ weekly/ yearly transfers into different equity schemes.
SWP- Systematic Withdrawal Plan:
Here, you can either choose to withdraw capital gains on your investments or a fixed amount.this way you will not only have money still invested in the scheme but also it can be part of your regular income and returns.
- With the SWP, you can time your withdrawals as per your financial needs. It ensures the availability of funds at the right time.
- With this plan, an investor can create a flow of income from an investment that is regular.
Hope this article helped you to understand the various ways of investing. Remember to make a thorough analysis of each before you make your choice. However, the most recommended option is SIP as it allows you to get into the habit of saving and provides the benefit of compounding.
Think Smart! Think Finity!