Mutual funds are amazing.
We all know that.
But just how amazing?
Turns out, more amazing than most of us think.
Mutual funds offer so many options, chances are you don’t even know about many.
Here are some tips and tricks about mutual funds that you didn’t know about.
Got a raise at the office? So now you’re making more money! Great!
And now, you want to increase your SIP amount.
Unfortunately, this is a cumbersome procedure. What to do?
Very simple. Just start another SIP in the same mutual fund with the increased amount.
So let’s say you already had a SIP of Rs 5000 per month in mutual fund ABC, and now you want to invest Rs 2000 more. Just start another SIP in mutual fund ABC where the SIP amount is Rs 2000. No need to increase the existing mutual fund to Rs 7000!
You should invest as much as you can.
The above point of increasing SIP is fine if your income has increased. But what if you have more money just once? What if your salary has remained the same but you got a hefty bonus this month?
If you have ever invested a lump sum, you’d know that there is an ‘Invest More’ option. You can simply invest whatever additional amount you wish to.
But what if you have an SIP?
The ‘Invest More’ option is available in case of SIPs also! Not many people know this sadly. But now that you know, you can take advantage of this option too!
So if your SIP is of Rs 10,000 a month, and you want to invest Rs 2000 more this month, you can do so.
So you need Rs 1 lakh for a holiday trip. But your total investment in a mutual fund is worth Rs 7 lakhs!
What to do?
Mutual funds let you withdraw only what you need.
So if you need Rs 1 lakh, you can withdraw only that amount and leave the rest in the mutual fund to grow!
Many times, you might wish to invest one-time. This is usually a large amount. Like, from the sale of a house or from inheritance.
But then, you’ve heard that SIP lowers your risk.
So maybe you’re thinking you’ll start an SIP with the entire amount.
That makes sense. It’ll surely lower your risk if you are investing in equity mutual funds. But while you are doing the SIP, the issue is that the rest of the money (money sitting in your bank) is not earning a very good return!
You should try STP! Systematic Transfer Plan.
In STP, your money is invested in a low-risk debt mutual fund that’ll give you returns that are higher than those given by your savings account or FD. Then, from the debt fund, the money is regularly moved to an equity mutual fund of your choice.
It is like starting an SIP from a debt fund to an equity fund instead of starting an SIP from your bank account.
You can earn a monthly income from mutual funds too.
It is called SWP. Systematic Withdrawal Plan.
The idea is simple.
You invest a large amount in a mutual fund for it to grow.
Every month, you are supposed to get a certain amount of money. So the mutual fund will redeem mutual fund units and send to you the money.
This way, you get a fixed monthly income while your money is growing!
If the amount you withdraw is lower than the returns of the mutual fund, you will never run out of money!
Okay, before moving ahead, you’re aware that you get somewhere around 3.5% per annum as returns from your savings bank account, right?
When you keep your money in a bank, they pay you for it. Sounds great, isn’t it? Yes. It is.
Except, mutual funds offer you something even better.
Liquid mutual funds are very low-risk mutual funds. They give around 6-7% per annum returns. And, unlike other mutual funds, taking money out of liquid funds takes only 1 working day.
So what many people do is to store money they would have kept in a savings bank account in a liquid fund.
That way, you can earn nearly double the rate you would have earned keeping your money in a savings bank account.
Mutual funds offer so many advantages, its hard to keep a track of them all.
With the above points, I just wanted to highlight some less known features about mutual funds that you should be taking advantage of!
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.
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