Modes of investing in MF - SIP, STP, VIP etc

Having decided the mutual fund and the scheme one wants to invest in, the investor has to finally decide through what mode he is going to invest the money. He has the following modes available to him: Systematic Investment Plan(SIP): This is the most popular choice for a salaried individual or any person who saves money regularly. Every month on a specified date an amount you choose is invested in a mutual fund scheme of your choice. The forms/instructions need to be submitted only once and every month the amount is deducted from your bank account and invested in the Mutual Fund Scheme. Hassle Free Investments. Systematic Transfer Plan(STP): In this mode of investing, where you initially park your entire INR 1 lakh (a big lumpsum amount) in a less risky category of mutual fund such as a liquid scheme, and then systematically transfer money on a regular basis from the liquid scheme to an equity fund or any other mutual fund scheme of the same fund house. For a business person who earns in lumpsums, STP is the best option. Since markets are volatile in the short run, and its impossible to time the markets to perfection, an investor must opt for STP.  This helps even out the volatilities just like the SIP option. Lumpsum (one time) - When you have a big sum of money lying in your bank account and you wish to invest the entire money in one go, then you can consider investing via lumpsum investments. This is more risky, as the entire amount is exposed to risk immediately.
Value Averaging Investment Plan(VIP)
VIP differs in the fact that while in SIP the monthly investment is a fixed amount, in VIP the monthly investment varies. The beauty of VIP lies in how the monthly amount to be invested is decided. VIP works on the concept that one must invest more when the markets are low and invest less when the markets are high. Based on the returns being generated by the market, VIP decides to invest more when the market fall and vice versa.
A target investment amount that has to be achieved monthly, needs to be set. Based on the target, the value of subsequent investments will be derived from the difference between the target and the actual value of the investment. Systematic Withdrawal Plan(SWP) is the complete opposite of SIP. It helps you withdraw equal sums of money on a periodic basis. Once you have accumulated a corpus through investments over a period of time, the SWP route can be used to withdraw the money on a monthly/weekly basis to cater to your needs. Value Averaging Transfer (VTP) - works on a similar while flexibly transferring money from one scheme to another based on the set target. VTP is similar to VIP in terms of the concept of investment. The difference here is that instead of a bank account, the money is transferred from a liquid fund to the selected equity fund VTP is not suitable for novice investors. They should consider investing through STP in the early stage of investing. Dividend Transfer Plan(DTP): An innovative option for risk-averse investors. One has two choices under this. If you have invested in an Equity scheme, you can decide to transfer Dividend declared by the Equity Schemes to a Debt Fund. This ensures that your profits are protected and transferred to a safer avenue. Conversely, if you have invested your money in a debt scheme, you can transfer Dividends declared by the Debt Fund to an Equity Scheme. This way your capital is protected and your returns are invested in equities in a bid to earn higher returns. As you can see, the underlying for all the above option is to help an investor become a disciplined investor and to overcome the problem of timing the market.
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