The
Secrets to Rupee Cost Averaging: Multiply Your Wealth with Mutual Fund Tools! Mohit Choudhary B.Com. (H) Sem - IV (Session 2021-24) Roll - 431
Understanding
Rupee Cost Averaging:
Imagine
you're at a buffet where the prices of dishes constantly fluctuate. If you grab
all the dishes at once, you might overpay for some and miss out on others. But
there's a smarter way to feast on the market! Think of it like opting for a
consistent serving size, buying more when prices are low, and less when they're
high. This clever technique is the essence of rupee cost averaging in mutual
funds – an investment strategy with incredible wealth-building potential.
As the wise John C. Bogle once said, "Trying to time
the market is like trying to catch a falling knife." And who wants to do
that, right?
SIP –
Systematic Investment Plan:
With SIP,
you get to enjoy a fixed amount of investments served regularly. Remember what
the legendary Warren Buffett said, "Do not save what is left
after spending; instead, spend what is left after saving." This means by consistently investing
a fixed sum, you can buy more mutual fund units when prices are low and fewer
when they're high. In doing so, you average out the cost over time and maximize
your potential gains.
Suppose Mr.
A's SIP starts in January. He decided to invest ₹5,000 consistently over the
subsequent months. As a result, he purchased units at varying prices due to
market fluctuations. However, Mr. A's disciplined approach rewarded him with more
units during market lows and fewer during highs. This led to the incredible
benefits of rupee cost averaging and, of course, improved returns.
STP -
Systematic Transfer Plan:
STP enables
you to strategically move your money from one scheme to another within the
mutual fund co. (AMC), effectively managing risk and optimizing returns.
Miss B wisely
started an STP with a ₹10,000 monthly transfer from her debt fund (in which she
has put her lumpsum corpus) to an equity fund. This clever move diversified
her investment and shielded her from sudden market shocks. Over time, Miss B
enjoyed a more balanced and effective investment strategy through this gradual
transition.
And here's a pro tip for you: If you have a lump sum of money and don't want to
worry about timing the market, consider investing it all at once in a debt or
liquid fund of the same mutual fund company (AMC) where you intend to invest.
Then, start an STP over the course of around 12 months. This way, your
investment remains unaffected by market fluctuations.
SWP -
Systematic Withdrawal Plan:
A way to
enjoy the returns on your investment while preserving the remaining corpus. SWP
offers investors a regular payout by redeeming units from their accumulated
investments.
Mr. C
started a SWP of ₹15,000 monthly from his equity fund. This provided him with
a consistent income stream while keeping his investment intact. The magic of
rupee cost averaging came into play here, as the number of redeemed units
adjusted according to market conditions.
And here's another pro tip: If you have an existing mutual fund investment that no
longer suits your needs, you can use SWP. Simply redeem a specific amount
through SWP while simultaneously initiating a SIP with that same amount (Unlike
STP it will help you in moving funds across the AMCs). This way, you maintain
financial harmony while making necessary adjustments. You can also make SWP your regular income source instead of FD by choosing the right
fund, such as a balanced or income fund, and carefully setting the SWP amount
based on your financial needs and the fund's performance, you can enjoy a
consistent income stream. Plus, you have the flexibility to select the
frequency of withdrawals – monthly, quarterly, or annually.
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