Recently Mutual funds have become popular part of investment portfolio. The range of schemes and income alternatives offered by Mutual Funds can fit in the financial preferences of all classes of investors be it Retail, Corporate or Institutional. Efficiency in performance of mutual funds has inspired a great confidence amongst the investors.
Mutual Funds offer plans keeping in view the risk profile and risk-return preferences of investors. Mutual Funds provide various investments plans in order to suffice a range of investors having various investment plans. These plans depend upon the circumstances of the investor whether he is interested in appreciation, fixed income, reinvestment of this income or retirement and insurance plans.
Some of the important investment plans include:
Dividend is not paid-out under a Growth Plan and the investor realizes only the capital appreciation on the investment (by an increase in NAV). A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realizes capital appreciation on the investment. This plan appeals to investors in the high- income bracket.
Dividends are distributed to the investors from time to time. But, the net asset value of the mutual fund scheme under an Income Plan is dependent on the dividend payout.
Dividend Re-investment Plan
Generally mutual funds present the investor with an option of taking dividends or an alternative to re-invest the same. In Dividend Re-investment Plan the dividend credited on mutual funds is automatically re-invested on behalf of investor in buying additional units in open-ended funds. This increases the number of units possessed by investor.
Depending on your life expectancy, lifetime income, disability income, tax advantages, what fraction of income one can spend, various plans are available that provide insurance cover to investors.
Systematic Investment Plan (SIP)
Also called Automatic Investment Plan, SIP is designed for the investors to plan their savings through an ordered regular monthly savings program. In the investor is given the choice of setting up a fixed number of post-dated cheques in favor of the fund. The investor is allotted units on the date of the respective cheques at the applicable net asset value. The investor invests in a specified frequency of months in a specified scheme of the Mutual Fund for a constant sum of investment.
Systematic Withdrawal Plan
In contrast to the Systematic Investment Plan, the Systematic Withdrawal Plan (also called Automatic Withdrawal Plan) allows the investor with the facility to withdraw a pre-determined amount or units from his fund at a pre-determined interval. The investor’s units will be redeemed at the applicable net asset value as on that day.