Mutual Funds - Plans

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 plans.

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 investment.

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 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 SEBI.

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)


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