Modes of Investing in Mutual Funds

Modes of Investing in Mutual Funds An Investor Education & Awareness Initiative By Franklin Templeton Mutual Fund

Popular Modes of Investing in a Mutual Fund Lump Sum or One Time Investment Systematic Investment Plan (SIP) Systematic Transfer Plan (STP) 1

Lump Sum or One Time Investment Lump Sum Mode helps invest all your investible surplus at one go Lump Sum investment attracts market risk Lump Sum investment can be rewarding only if the long term trend of the economy is positive Suitable if you are ready to take High Risk for High Return or are willing to compromise on the returns by parking your entire surplus in Low Risk option such as liquid funds 2

Systematic Investment Plan (SIP) SIP is a disciplined Mode of Investment You can start SIP with a lower investment amount SIP can help you steadily build a corpus over time SIPs provide you the benefit of Rupee Cost Averaging You can start your SIP with a One-Time Instruction 3

SIP Vs Lump Sum Month S&P BSE Sensex A Investment Amt. (Rs) B Systematic Investment Plan Units B / A Market Value (Rs) (Total Units* A) Investment Amt. (Rs) C Lump-Sum Units C / A Market Value (Rs) (No. of Units * Index) 15-Jan-2013 19,987 10,000 0.50 10,000 120,000 6.00 120,000 15-Feb-2013 19,468 10,000 0.51 19,740 15-Mar-2013 19,428 10,000 0.51 29,700 15-Apr-2013 18,358 10,000 0.54 38,064 15-May-2013 20,213 10,000 0.49 51,910 17-Jun-2013 19,326 10,000 0.52 59,632 15-Jul-2013 20,034 10,000 0.50 71,817 16-Aug-2013 18,598 10,000 0.54 76,669 16-Sep-2013 19,742 10,000 0.51 91,385 15-Oct-2013 20,548 10,000 0.49 105,116 18-Nov-2013 20,851 10,000 0.48 116,666 16-Dec-2013 20,660 10,000 0.48 125,598 15-Jan-2014 21,289 Total = 120,000 Total = 6.08 129,421 120,000 6.00 127,817 Returns 14.80% * 6.51%^ The example is for illustration purposes only * XIRR Method ^ Point to point returns Data Source CRISIL MF Research Tool 4

Systematic Transfer Plan (STP) STP helps in gradually investing a large corpus in a selected asset class STP is a relatively safer investment method than lump sum investment and may prove to be a higher yielding method than SIP investment. STPs can be a smart financial planning tool. STPs provide you with the benefit of Rupee Cost Averaging You can start your STP with a Single Mandate 5

How an STP works? Month Opening Balance in Liquid Fund(Rs) A Transfer to Equity Fund (Rs) B Closing Balance in Liquid Fund (Rs) A-B Return from Liquid Fund @ 7% p.a.(rs)* Return from Equity Fund @ 12% p.a.(rs)^ C Final Value of each Transfer(Rs) B+C Total Value of Investment(Rs) 1 120,000 10,000 110,000 642 1,268 11,268-2 110,642 10,000 100,642 587 1,157 11,157-3 101,229 10,000 91,229 532 1,046 11,046-4 91,761 10,000 81,761 477 937 10,937-5 82,238 10,000 72,238 421 829 10,829-6 72,659 10,000 62,659 366 721 10,721-7 63,025 10,000 53,025 309 615 10,615-8 53,334 10,000 43,334 253 510 10,510-9 43,587 10,000 33,587 196 406 10,406-10 33,783 10,000 23,783 139 303 10,303-11 23,922 10,000 13,922 81 201 10,201-12 14,003 10,000 4,003 23 100 10,100 - Total 120,000 4,026 (D) 8,093 128,093 (E) 132,119 (D+E) * Monthly Return, ^ Return over 12 months compounded monthly Data Source CRISIL MF Research Tool 6

Value Averaging Investment Plan (VIP) VIP aims to invest more when the markets are low and invest less when the markets are high A target investment amount that has to be achieved monthly needs to be set VIP helps one to lower the Cost of Purchase of units more effectively than SIP VIP may be suitable for investors who are ready to invest different amounts each month Only a few mutual fund houses offer this facility 7

SIP vs. VIP in same scheme Systematic Investment Plan Value Averaging Investment Plan Month S&P BSE Sensex A Investment Amt. (Rs) B Units (B / A) Market Value (Rs) (Total Units * A) Target Market Value (Rs) Net Units bought to achieve target value C Amount Invested (Rs) (C * A) Value of Investment in the next month 15-Jan-2013 19,987 10,000 0.50 10,000 10,000 0.50 10,000-15-Feb-2013 19,468 10,000 0.51 19,740 20,000 0.53 10,260 9,740 15-Mar-2013 19,428 10,000 0.51 29,700 30,000 0.52 10,041 19,959 15-Apr-2013 18,358 10,000 0.54 38,064 40,000 0.63 11,652 28,348 15-May-2013 20,213 10,000 0.49 51,910 50,000 0.29 5,958 44,042 17-Jun-2013 19,326 10,000 0.52 59,632 60,000 0.63 12,194 47,806 15-Jul-2013 20,034 10,000 0.50 71,817 70,000 0.39 7,802 62,198 16-Aug-2013 18,598 10,000 0.54 76,669 80,000 0.81 15,017 64,983 16-Sep-2013 19,742 10,000 0.51 91,385 90,000 0.26 5,079 84,921 15-Oct-2013 20,548 10,000 0.49 105,116 100,000 0.31 6,326 93,674 18-Nov-2013 20,851 10,000 0.48 116,666 110,000 0.41 8,525 101,475 16-Dec-2013 20,660 10,000 0.48 125,598 120,000 0.53 11,008 108,992 15-Jan-2014 21,289 120,000 (Total) 6.08 (Total) 129,421 123,689 5.81 113,862 Gain/Loss 9,421 9,827 Returns (XIRR) 14.80% 15.84% Data Source CRISIL MF Research Tool 8

Value Averaging Transfer Plan (VTP) VTP is similar to VIP in terms of the concept of investment Like VIP, VTP too helps one Invest by flexibly transferring more money in the scheme when the markets are low and less money when the markets are high The targeted amount and returns of the scheme are considered for arriving at the amount of subsequent transfers VTP may not be suitable for novice investors 9

Dividend Transfer Plan (DTP) Dividend Transfer Plan as a concept works similar to Dividend Reinvestment Plan Through DTP one can choose to reinvest the Dividend Income either from a Debt Scheme to an Equity Scheme or from an Equity Scheme to a Debt Scheme The reinvestment of the Dividend Income can be done in another scheme but from the same fund house 10

Systematic Withdrawal Plan (SWP) SWP helps Systematically Withdraw money from pre-invested mutual fund scheme on a regular basis to meet the ongoing expenses of the investor The money withdrawn through SWP can be credited to the bank account of the investor SWP offers Fixed Withdrawal as well as Appreciation Withdrawal facility SWP can help manage regular expenses without keeping the savings idle 11

Points to Remember Lump sum investment attracts market risk and can only be rewarding if the long term trend of the market is positive Systematic Investment Plan or SIP helps develop disciplined investment strategy irrespective of the market condition SIPs can help you steadily build wealth over time SIPs provide you with the benefit of Rupee Cost Averaging Systematic Transfer Plan (STP) is a relatively safer investment method than Lump sum investment Value Averaging Investment Plan helps investors invest more when the markets are low and invest less when the markets are high 12

Points to Remember Value Averaging Transfer Plan too helps one Invest by flexibly transferring more money from one scheme to another when the markets are low and less money when the markets are high Dividend Transfer Plan can help reinvest the Dividend Income from one scheme to another scheme Systematic Withdrawal Plan (SWP)helps systematically withdraw a fixed amount of money from a pre-invested scheme to meet ongoing expenses of the investor 13

We now invite you to test your learning betaking up this simple quiz And win exciting prizes! 14

Quick Quiz 1) helps develop disciplined investment strategy and is a smart financial planning tool. A. Lump-Sum B. Systematic Withdrawal Plan C. Systematic Investment Plan D. None of the above 2) Value Averaging Investment Plan aims to invest less when the markets are low and invest more when the markets are high. A. True B. False 3) Systematic Withdrawal Plan helps money from the scheme A. Invest B. withdraw C. Transfer D. Save For Answers, refer next slide 16

Quick Quiz 4) Dividend Transfer Plan as a concept works similar to A. Investment Plan B. Dividend Pay-out Plan C. Growth D. Dividend Reinvestment Plan 5) SIP provides investors with the benefit of Rupee Cost Averaging. A. True B. False Answers 1-C 2-B 3-B 4-D 5-A 17

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