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Benefits of Systematic Transfer Plan Research Team | Posted On Tuesday, April 07,2009, 10:46 AM

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Benefits of Systematic Transfer Plan



What is Systematic Transfer Plan?

There are a small number of benefits of this entire process for the investor that has to be taken into consideration. First of all, there is the averaging out of the cost in the equity investment just like a SIP, because the investment is made regularly each month. This ensures that there is an efficient manner of buying into the units of the equity scheme.

Benefits of Systematic Transfer Plan

The additional benefit is that the investment till the time of the transfer earns a higher rate of return than the normal amount that would be earned had the money been left in a savings bank account. The return for liquid funds is higher than the savings bank interest and this will promote the investor in terms of a higher return.

There is also the easiness of the process and the fact that the entire requirement of the investor is being completed effortlessly without much of administrative work. All this is helpful for the investor as they are comfortable with the process.

Wealth creation out of capital market can be very tough and uncontrollable task. The people who earn through capital markets have to give large amount of time to understand its every aspect. But with mutual funds, investing in capital market has become all the further simpler and less risky. If followed methodically it also lead to wealth creation. Systematic investment plan, S.I.P is been termed as a pathway to wealth creation due to its feature of disciplined and long term nature. Capital markets are made up of a lot of different investors who participate in it. There are bulky institutions, such as fund houses, as well as companies, brokers and individual investors. Over the long-term, the financial market can do better but in the short- term, prices rise and fall on many accounts but the basis of fluctuation are quiet similar like fundamental reasons like company news, market sentiment, expectations, rumor or competitor activity.

There are statistical measures and techniques, such as price-earning ratios, which help determine the true value of a stock or bond, but many times in the financial market rational measures are often unnoticed and sentiment can take over.

Deciding when to invest in this environment can be a traumatic task. If the market is doing better you may fear that you’re buying when prices are too high. By contrast, when the market is falling, there is a lack of enthusiasm to invest due to fears that it may fall further. So what should an investor need do to in order to keep away from having to make these timing decisions?

Systematic Investment Plan

Many a times by the time a common investor realize that its time to invest, the market is already at its hit the highest point. The Systematic Investment Plan is not a kind of mutual fund. It is a technique of investing in a mutual fund. Systematic investment plan is generally known as SIP. SIP is a good way to invest as it leads to regimented and regular investment.

When you purchase the units of a fund, you may do so when the NAV is really high. For occasion, let's say you bought the units of a fund when the market is at its hit the highest point, leading to a elevated NAV. If the market drops after that, the value of your investments falls and you may have to remain for a long while to make a return on your investment. But, if you invest through a SIP, you do not entrust the mistake of buying units when the market is at its peak. In view of the fact that you are buying small amounts continuously, your investment will average out over a period of time. Investing on a regular basis removes the nervous tension of “timing the market” because you are employing the concept of “Rupee Cost Averaging”. If you are an investor in mutual funds it means that you buy additional units when the purchase price is low and smaller quantity units when the purchase price is high. The trap to all this is to remember that it’s not the cost you pay for each unit that matters. It’s the average price per unit over time that determines you’re by and large return. This will be lesser than the cost accrued to lump sum investment.

More over a systematic investment carry definite other benefits for the investors like diversifying the risk. If you are investing regularly then the oscillation in the market won’t give heart ache to the investor as the investment is not done lump sum. The investor spreads out his risk through the pathway of SIP.

The quantity to be invested to get started is very less and therefore it is in everybody’s reach. Some persist the SIP must be done every month. Others give you the alternative of investing once in three months or once in six months. Similarly investor can keep away from timing the market by withdrawing constant amounts periodically (Systematic Withdrawal Plan), or systematically transferring investment between diverse schemes (Systematic Transfer Plan).

Would you like to have access to the SIP calculators which are designed to help investors in analyzing different scenarios for automatic investment plan, which include:
Your sip need, your sip amount, sip return.

You can put different information/amount for generating different results and know how secured your financial future would be if you invested 1000 every month opening this month, for the next 20years and you are expecting a return of 20%(I have taken the minimum consideration, some funds give 35% to 50% return for such medium/long term investments) and the total amount that you will be receiving at the end 20 years will be :2476194.Your overall investment for 20 years was 240000.

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