How to buy

Buying a fund is a form and a bank transfer. Three of the mechanics behind it are worth understanding, because each one surprises somebody every day.

You do not choose which day's NAV you get

This is the one that catches people.

Applying is not the same as investing. SEBI ties the applicable NAV to when the money is realised and available to the scheme, not to when you submitted the request.

SEBI's own illustration makes the point better than a rule can. If funds are realised or available for utilisation by a given cut-off on a Wednesday, you get Wednesday's NAV; if they arrive by 5 pm on Wednesday instead, you get Thursday's. The same application, hours apart, buys units at two different prices.

For a purchase this matters more than it sounds. A day's delay in a falling market gets you a lower NAV and more units; in a rising market it gets you fewer. Neither is a disaster, and neither is under your control once the payment is in transit.

The practical consequences:

• The applicable NAV is not knowable in advance. You are always buying at a price that will be computed after you commit — which is exactly what chapter 2 said NAV is for.
• Transferring earlier is worth more than applying earlier. The clock that matters is the money's.
• Redemption runs the same way. You are redeeming at a NAV determined after you ask.

SIP is a schedule, not a product

A systematic investment plan is an instruction to invest a fixed amount at a fixed interval. SEBI describes it as a way to "invest as you earn" that "offers the investor an opportunity to enter the market regularly, thus averaging the acquisition cost of Units."

What it does is arithmetic, and SEBI's illustration states it exactly: when the price falls the investor "benefits by purchasing more units; and is protected by purchasing less when the price rises".

A fixed rupee amount buys more units when the NAV is low and fewer when it is high. Your average cost per unit therefore comes out below the average NAV over the period. That is a genuine effect and it is not magic — it follows from holding the rupee amount constant rather than the unit count.

Three things a SIP is not.

Not a different scheme. A SIP into a fund and a lump sum into the same fund buy the same units of the same portfolio. There is no separate "SIP fund".

Not a guarantee. Averaging into a market that falls and stays down produces a loss, more slowly. It manages the timing risk of entry, not the risk of what you bought.

Not automatically better than a lump sum. If you have the money now and the market rises steadily, a lump sum wins because more of it was invested for longer. The case for a SIP is that it matches how salaries arrive and removes a decision you would probably make badly.

Related instructions exist for moving money rather than adding it: a systematic transfer plan shifts money from one scheme to another on a schedule, a systematic withdrawal plan takes a fixed amount out on a schedule, and a switch moves a holding from one scheme to another. All three are transactions in units, with the same NAV and load consequences as any other.

Growth or IDCW

Every scheme offers at least two options, and the choice is more consequential than it looks.

Growth retains everything in the scheme. Nothing is paid out; gains show up as a rising NAV, and you realise them when you redeem.

IDCW — Income Distribution cum Capital Withdrawal, renamed from "dividend" on 1 April 2021 — pays money out periodically. The NAV falls by what is paid, as chapter 2 established.

SEBI renamed it, in its own words, "to clarify the difference between dividends from stocks and mutual funds and to avoid confusion that the dividend option was a guaranteed bonus."

Two points follow.

IDCW is not income the fund generated for you. It is your own capital being returned along with any income, which is why the name contains "capital withdrawal". The payment is not evidence the scheme performed.

For most people accumulating money, growth is the simpler choice. An IDCW payment is taxed when it is made, whether or not you wanted the money, and reinvesting it is a fresh purchase at a fresh NAV. The growth option defers that decision to when you actually need cash — at which point a systematic withdrawal plan does the same job with more control.

Payments have deadlines: IDCW must reach unitholders within seven working days of the record date, and redemption proceeds within three working days of redemption — five for schemes with at least 80% in overseas investments.

New fund offers, and ASBA

A new fund offer can be applied for through ASBA, the same blocked-amount mechanism as an IPO: the money stays in your bank account, blocked, until units are allotted.

Worth remembering what chapter 2 said about NFOs while you are there. A new fund at ₹10 is not cheap, and it has no track record. Occasionally an NFO is a genuinely new strategy; most of the time it is a scheme that already exists elsewhere, launched because new schemes are easier to sell.

The point

The applicable NAV follows the money's arrival, not your application, so you never know the price in advance. A SIP is a schedule that lowers your average cost by holding the rupee amount constant, not a product and not a guarantee. IDCW returns your own capital and is taxed when paid; growth defers the decision.