Action Doesn't Make Money in Mutual Funds
Inaction Does
What is a Mutual Fund?
Let us understand what a Mutual Fund is in a simple way.
There are five companies named Company A, B, C, D and E
The share price of the Company A, B, C, D and E are as follows
| Company Name | Share Price (Rs.) |
| A | 1300 |
| B | 1000 |
| C | 700 |
| D | 400 |
| E | 1600 |
| Total | 5000 |
There are 10 people who are interested in investing in these five companies and plan to buy the shares of the companies. Each person have Rs. 500 with them. They cannot buy the shares of all the companies as the shares prices are more than the amount they have as an individual.
All the 10 people can only buy the share of company D as its share price is Rs. 400 and they have Rs. 500 with them each.
So all the 10 people come together and decide to pool in Rs. 500 each and buy the shares of these five companies. (500*10 = 5000)
As per their contribution of Rs. 500, each person gets 1 unit. (5000/10).
Now all the 10 people together own shares of the five companies and individually are a part owner in these five companies.
Why Invest through Mutual Funds
Convenience
Beats Inflation
Investments are managed by Experts
Income Tax friendly
Helps Diversify
Cost Friendly and Transparent
Systematic Investment Plan (SIP)
SIP is a method of investing in mutual funds wherein you can invest a small amount at periodic intervals. It is an excellent option for small investors to get exposure to investing in mutual funds.You can start a SIP with as little as Rs. 100 per month. It provides the Power of compounding as well as the benefit of Rupee cost averaging and helps in being a disciplined investor.
Systematic Withdrawal Plan (SWP)
SWP is a facility that allows you to withdraw a predetermined amount every month at fixed intervals. It could be understood as the opposite of SIP. SWP is good to create income in retirement.
Systematic Transfer Plan (STP)
STP is a facility by which mutual fund investors can periodically transfer a certain amount or units of mutual fund scheme to another mutual fund scheme of the same AMC.