Mutual funds offer special investment options, plans and facilities to investors to allocate funds as per their requirements. Details of the various options and plans are available in the application forms along with the Key Information Memorandum (KIM) and the scheme documents. We answer investor queries on some of these options.

What is a dividend sweep facility?

Using this facility, unit holders can opt to sweep or invest the dividend earned in a scheme into any other open-ended scheme. This is similar to dividend reinvestment. However, under dividend reinvestment, the dividend amount is reinvested in the same scheme in which dividend was declared.

Investors who wish to reinvest dividend into another scheme may opt for this facility. The KIM will contain details of the facility if available. The schemes available under this facility and the minimum amount for the sweep to happen would be mentioned.

I have read about a trigger facility. Can you explain?

Some mutual funds offer a ‘trigger' facility to investors. Under this, a transaction is automatically triggered in the investor folio on the occurrence of a certain event.

For example, an investor can opt to trigger a redemption or a switch to another scheme if a certain appreciation level is attained. Investors can choose a specific percentage of target return. If this is achieved in the scheme e.g. a gain of 25 per cent, either the gain alone or the complete fund value (as per the investor choice) can be redeemed or switched to the any of the schemes notified.

This may be used by investors if their investments in an equity fund have significantly appreciated and they can redeem or switch to a debt scheme to conserve capital. Triggers thus act as financial planning tools and enable the investor to book timely profits.

Another innovative option could be the triggering of a dividend payout in the scheme if the NAV has appreciated by a certain percentage. Under this option investors can choose a specific rate of target appreciation. If achieved, a dividend would be automatically declared under the scheme.

Different kinds of triggers are possible and investors may check the scheme documents for details of the triggers available in the schemes.

What do you mean by Systematic Withdrawal Plan (SWP)?

This is a facility wherein investors can opt to systematically withdraw money i.e. effect redemption at predetermined regular intervals. Investors may fill in the SWP form which is available along with the application form and submit the same to register under the SWP Plan.

While in SIP, investors are can invest on predetermined dates, investors opting for SWP can redeem a portion of their investments on predetermined dates. Investors may have the option of withdrawing amounts weekly, monthly or quarterly.

What is a Systematic Transfer Plan (STP)?

This is a facility wherein unit holders of designated schemes can opt to transfer a fixed amount at regular intervals to designated open ended schemes.

Investors opting for this are therefore systematically switching amounts from one scheme to another as an investment strategy. For example, an investor may keep Funds in a liquid scheme and opt to transfer or switch to an equity scheme every month on a predefined date.

Investors would have to submit the STP registration form and submit the same to the mutual fund to enrol for the same.

(Contributed by CAMS Investor Education Team. These are general practices of the mutual fund industry and may vary on a case to case basis)

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