Investment : What are the best way to invest your money?

HI.

Let me explain the best way to invest your money in Mutual fund.
Mutual funds include the schemes for every stage.

If you earn a monthly salary and want to invest money with handsome returns then the Systematic Investment Plan would be the best way,
But in the case when you are retired and want to invest so that you still get monthly income even after retirement then Systematic Withdrawal Plan would be perfect for you.

What if you have a lump sum of Rs 10 Laks and want to invest? 
then your answer is Systematic Transfer Plan.

Let's take these strategies and understand them clearly with examples:

Case 1: Systematic Investment Plan

This is the best strategy for income class people where a certain amount can be invested periodically in a selected mutual fund.
Systematic Investment Plan or SIP is an investment strategy where an investor invests a certain amount of money in a selected mutual fund at a selected period.

Investing in SIP makes an investor take part in the stock market without the extra effort and actively timing them. This scheme helps reduce the average cost per unit of investment.

As we know that mutual fund invests money in the stock market, the value of mutual fund based on the market value of stocks in the portfolio. 

Now suppose you put all your in one stock, then there is a risk of market going down at some point. Everyone wants to invest when the market is down but nobody can time the market. Hence the best way is to average out the purchase over time. 

For Example: 

A person invests Rs 1000 for ten months in SIP. we will find out that the actual average purchase cost of the asset would be lower than the average value of the mutual fund over 10 months which is the key benefit of the Rupee Cost Averaging. 

What is Rupee Cost Averaging? Do you ask? 

Well, the concept of rupee cost averaging lies in averaging out the cost at which you buy units of a mutual fund. The equity market has always been volatile reflecting the ups and downs of the economy. 

The basic principle of investing tells the same thing. It guides the investor to "buy low and sell high". it means that you should buy more units of a mutual fund when the markets are down and fewer units when the market is up.


If you still don't get it, kindly make yourself familiar with a table given below:- 

Case 2: Systematic Withdrawal Plan

Today, everybody knows that if you put your hard-earned money in a savings account then you can't beat inflation. Now for a person who recently got retired would look for the safer option of investment with monthly income. 

You must be thinking if that's possible to earn a monthly income with invested money? the answer is yes, absolutely you can do that with the Systematic Withdrawal Plan also known as SWP.

A Systematic Withdrawal Plan is a scheme which allows you to withdraw a fixed amount from your mutual fund at regular periodic intervals. 

The periodic intervals are present as per the investor's requirement. when you withdraw, the value of your investment gets reduced by the market value of the units. 

How does the Systematic Withdrawal Plan work?


Let me explain this with the help of an example. Suppose Mr y purchased 1000 units of a mutual fund scheme for Rs. 1 lakh in January. And, withdrew Rs. 1000 per month for 4 months starting February through SWP.

So, by the end of May, Mr. y has withdrawn Rs. 40,000 total through SWP and owns an investment worth Rs. 65,296.

Hope it helps. 

Take note here that when it comes to investment then there is no "One size fit all" strategy. The above explanation is for just clarity and to help you understand the different strategies. Investment differs based on risk appetite and goals of an individual.