subject: Benefits Of Systematic Investment Plan [print this page] A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund. In short, Mutual Fund can be defined as a trust that pools the savings of a number of investors who share a common financial goal. There are two direct ways of investing in a mutual fund with first being investing a lump sum amount and other being systematic investment plan. ULIP is the indirect way to invest in a mutual fund. Ulip being insurance cum investment plan invest money in mutual funds with corpus developed from premiums paid by insurance buyers. Systematic investment plan is the most preferred among these ways due to following benefits:
Flexibility: Investment in mutual fund provides lot of flexibility to the investor as investor has the option to decide their investment amount which ranges from as below as Rs 500 and no maximum cap. It provides other features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans enabling systematic investment or withdrawal of funds.
Liquidity: A distinct advantage of a systematic investment plan over other investments is that there is always a market for its unit/ shares. It's easy to get ones money out of a mutual fund. Redemptions can be made by filling a form attached with the account statement of an investor.
Diversification: A proven principle of sound investment is that of diversification, the idea of not putting all your eggs in one basket. By investing in many companies, systematic investment plan can protect themselves from unexpected drop in values of some shares. Small investors can achieve wide diversification on his own because of many reasons, mainly funds at his disposal.
Transparency: Being under a regulatory framework, mutual funds as a whole have to disclose their holdings, investment pattern, and all the information that can be considered as material, before all investors. SEBI acts as a watchdog and safeguard investors interest. Moreover, mutual fund companies have an obligation to provide periodic statements through which an investor can check every small detail like value of their investment, asset allocation etc.
Professional Management: Mutual fund companies pay professionals to manage their investments. These professionals are called Fund Managers. They supervise funds portfolio, take desirable decisions viz. what scrips are to be bought, what investments are to be sold and more appropriate decisions about timings of such buying and selling which directly benefits investors as professionals can help reducing market risk.
