Direct Plan: From January 1, 2013, all AMCs have rolled out
a new plan under their existing fund schemes- the Direct
Plan. These are targeted at investors who want to invest
themselves, hence these have a lower expense ration compared
to existing fund schemes of the AMC.
This means that you, as an investor, will get an opportunity
at earn a slightly higher return from mutual fund despite
the same portfolio. The direct plans will not charge annual
recurring commissions, resulting in them having lower annual
charges and a different (higher) NAV compared to the regular
plans. The expense ratio on a direct plan could be anywhere
between 0.30 and 1 percentage point lower than the regular
How to Exit: If you invest online or if you are registered
for online transactions, then you can seek online redemption
and the proceeds will be deposited in your bank account. For
offline investors, there is a redemption slip that comes
with your account statement. This has to be filled up,
signed and deposited at the nearest 'investor service
centre'. The intermediary you have invested through will
facilitate the process. In all cases, redemption proceeds
come to your bank account.
SIP, SWP, and STP:
There are some special 'systematic' ways of investing and
redeeming your money in mutual funds. They are enormously
useful in making you a more disciplined investor, as well as
enhancing your returns.
Systematic Investment Plan (SIP): An SIP is a regular
investment in a fund for a fixed sum at a fixed frequency.
Generally, the frequency is monthly. SIPs neatly solve two
main problems that prevent investors from getting the best
possible returns from mutual funds. Firstly, since SIPs mean
investing with a fixed sum regularly regardless of the NAV
or market level, investors automatically buy more units when
the markets are low. This results in a lower average price,
which translates to higher returns. If you invest a large
sum at one go, you could end up catching a high point of the
equity markets. This would mean that you have invested at a
high NAV and that would reduce your gains if the market
falls. An SIP is a good way to invest at an average price
over a period.
Secondly, SIPs are also a great psychological help while
investing. Investors inevitably try to time the market. When
it rises, they invest more. This is the opposite of what
should be done. An SIP puts an end to all this by automating
the process of investing regularly.
Systematic Withdrawal Plan (SWP): SWPs are a regular
redemption from a fund. There are a number of variations.
Investors can either redeem a fixed amount, a fixed number
of units or all returns above a certain base level. These
provide a convenient way for regular income from a fund
Systematic Transfer Plan (STP): An STP is regular transfer
from one fund to another. It's like an SIP but the source of
the money is another fund. The most frequent use of an STP
is when you have lump sum to invest in an equity fund. For
reasons listed above, it is always better to invest
gradually through an SIP. Instead, you could put the lump
sum in a debt fund of an AMC and simply give instructions to
transfer a fixed amount into a chosen equity fund every
month. This is called STP.
Load: Load is a small percentage of your investment that can
be deducted by the AMC at the time of redemption. Load
percentages can range from zero to 4 per cent .the actual
percentage (and whether it will be charged at all) depends
on the type of fund and the period of investments.
Typically, there could be a load of 1 per cent if you redeem
within a year of investment and no load after that. Earlier,
there could also be an entry load that was charged at the
time of investment but in August 2009, this was abolished by
Investing in a fund involves going through a KYC (Know Your
Customer) process, much like other financial transactions.
Your will need the following documents for the KYC:
- Individual investors will have to produce their proof of
identity (Photo PAN card copy or PAN card copy and copy of
the passport, driving license etc) and Proof of Address (any
valid documents listed in Section B of the KYC Application
Form for individuals)