A Father-child relationship is one of the most beautiful relationships in the world. However, it is often felt that a father may not even express their emotions and feelings with their children yet silently work towards fulfilling all the dreams and aspirations of their child. Traditionally, financial matters often flow from top to bottom, with your Father taking care of your savings, etc., during the early stages of your lives.
The younger generations, "millennials", may be comfortable with the new-age investment options. However, the elderly generation has been finding the traditional investment options like bank deposits, post office schemes, etc., more convenient and safe. So, why not take an opportunity this Father’s Day to introduce him to the world of mutual funds and gift him a Mutual Fund SIP.
Systematic Investment Plan (SIP)
A Systematic Investment Plan refers to the investment option wherein the investment amount is deducted automatically from the bank account periodically and invested in the mutual fund scheme of the investor's choice. Investors can choose a mutual fund scheme basis their investment horizon and risk appetite.
Investments with a long-term investment horizon may be made in equity schemes, while with a shorter investment period, hybrid or debt schemes can be a better choice. This facilitates the consistent accumulation of wealth while also eliminating emotional bias from the process.
One can register a Systematic Investment Plan (SIP) in their Father's name, wherein the investments may flow from the joint bank account. SIP is the best option to grow the retirement corpus in case retirement is still some years away.
Regular Cash Flows through Income Distribution
Mutual funds also provide an option to invest either in a "Growth plan" or "Payout of Income Distribution cum capital withdrawal plan" (erstwhile known as dividend plan). If the investments are made in the growth plan, the profits realised by the mutual fund scheme are reinvested into the scheme, thereby allowing the benefits of compounding.
However, considering the regular cash flow requirements for your Father, investment can be made in the "Payout of Income Distribution cum capital withdrawal plan", which distributes income on period basis to the investors based on the profits realised by the scheme. Since mutual funds provide market-linked returns, the quantum of periodic cash flows may differ in each period.
Systematic Transfer Plan (STP)
A Systematic Transfer Plan (STP) allows investors to switch investments from one mutual fund scheme to another periodically. While your Father may have invested predominantly in equity mutual fund earlier, continuing investments with equity heavy schemes may not be desirable as one approaches the retirement age.
As such, STP can be used to steadily switch from equity investments to debt investments to de-risk the portfolio to some extent. Further, with the investments getting transferred to other schemes over time and not in lumpsum, one need not be stressed to time the markets to make the transfer at the best valuations.
Systematic Withdrawal Plan (SWP)
SWP is another investment facility allowed by mutual funds wherein one can withdraw regular amounts from his/ her mutual fund portfolio by making automatic redemptions.
Fixed cash flows may not possible in the income distribution plan since the distribution depends upon profits realised by the scheme. SWP facility can also be utilised to invest the retirement corpus like provident fund balance, gratuity payment in any suitable debt oriented schemes or schemes with relative lower risk, and periodically withdraw it. In the meanwhile, the balance investment corpus continues to earn returns for the investor.
While financial talks are seldom flowing from child to parents, help them be aware of the new investment options without compromising their convenience and comfort. Taking care of their financial requirements and preferences, make your Father feel special this Father's Day and every day!
Disclaimers:
UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd or UTI Mutual Fund (acting through UTI Trustee Company Pvt. Ltd) accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully
This material is part of Investor Education and awareness initiative of UTI Mutual Fund.
The information herein should not be considered as 'investment advice'. Reader is requested to make informed investment decisions and consult their Mutual fund distributor or financial advisors to determine the financial implications with respect to investing in Mutual Funds
