In mutual funds, by using systematic transfer plan (STP) investors can transfer a fixed amount from one scheme to another. A variant of STP, known as Systematic Switch Plan, is offered where investors can transfer a certain number of units from one scheme to another. If an investor is worried that the market may fall in the next six months, he can invest in a low risk / no load liquid fund and transfer money at regular intervals (weekly, fortnightly, monthly, etc.,) to an equity fund. While STP will ensure rupee cost averaging of purchase price, investments made in liquid fund will keep providing some returns.
Sweep is a sub-option under dividend payout option. The dividends declared by one scheme get transferred and re-invested in another scheme chosen by the investor. An investor can opt for sweep sub-option of dividend option of an equity MF scheme and transfer the dividends declared by such equity scheme to a low-risk liquid or debt fund, instead of receiving dividend pay-outs, so that he can continue to earn returns on the dividends and at the same time reduce the risk.
Using a trigger, investors can instruct the asset management company (AMC) to redeem a certain amount or certain number of units from a scheme based on specific events. These events can be the investment value reaching a specified amount, the scheme net asset value (NAV) reaching a specified level, market indices reaching a specific level, profits crossing a certain level, etc. Triggers can help investors to book profits and maintain target asset allocation automatically without having to continuously track their investments.
Switch is the facility of switching your investment (partially or fully) from one scheme to another. Investors can use the switch option to maintain desired asset allocation or when their investments reach a specific milestone.
Regular withdrawal plan
Regular Withdrawal Plan (RWP) or Systematic Withdrawal Plan (SWP) gives the flexibility to withdraw the amount they need from their mutual fund investments at a regular frequency. The balance amount remains invested in the scheme and continues to earn returns.
The author is chief investment officer,
Principal Pnb AMC