Systematic transfer plan to bring extra benefit

K. ARAVIND

Low investment in the stock market is one way to maximise profits. But it is very difficult to invest in high and low levels. Therefore, investing in Employees’ Provident Fund or Recurring Deposit is a way to plan your investment every month regardless of the ups and downs of the stock market. Mutual Funds Systematic Investment Plan (SIP) is designed for such monthly investments. This investment method also helps in maintaining financial discipline.

Those who buy mutual fund units through SIP on a fixed date every month do not have to worry about where the stock market is heading. Investors who buy units at high prices when the market is high have the opportunity to buy at a lower cost and lower the average investment cost when the market is down.

At the same time, Systematic Transfer Plan (STP) is a more effective investment option than SIP. In a systematic investment plan, a certain amount is transferred from a bank savings account to an equity fund on fixed dates. At the same time, in a systematic transfer plan, the money is deposited in any debt fund and, as in SIP, the debt is transferred from the deposit to the equity fund on a fixed period of time. In doing so, the investor also benefits from the investment made in the debt fund.

Debt funds are mutual funds that invest in bonds. Liquid funds in debt funds or ultra short term funds can be used for a systematic transfer plan. Liquid funds and ultra short term funds invest in short-term debt securities. The average annual return on ultra short-term funds over the past one year is 6%. There are also funds that have returned more than 7%. Liquid and Ultra Short Term Funds can be expected to have a return equal to the Repo rate on an annual basis, but many funds are able to provide better annual returns than the Repo rate due to the excellence of fund management.

At the same time, interest rates on savings bank accounts have dropped significantly. SBI has linked interest rates on savings bank accounts above Rs.1 lakh to repo rates. The interest rate on savings bank accounts above Rs.1 lakh in SBI is currently 3 per cent.

After investing Rs.1 lakh in an ultra short term fund if you invest it under STP for one year, the return can be as high as Rs. 1,200 extra over SIP.

Withdrawals from Liquid Funds and Ultra Shot Term Funds are free of charge. Exit load is applicable if the investment is withdrawn from debt funds within a year but it is not applicable to liquid funds.