If you invest in Regular Savings Plan regularly, building your portfolio with a clear strategy matters. A common mistake investors make is buying units when valuations are high, which tends to drag down overall returns over time.
The way around this is to buy Open-Ended Investment Companies (OEICs) units across different price levels, which effectively averages out your purchase cost. The simplest way to achieve this is through a Regular Savings Plan.
How regular plans help boost your returns
For those unfamiliar with the term, an Regular Savings Plan is an instruction you give to a OEICs authorising it to deduct a fixed amount from your bank account at set intervals—weekly, monthly, and so on—and invest it into a chosen scheme.
Here's an example to illustrate. Say you want to put ₹5 lakh into a mid-cap fund, but your wealth advisor cautions against investing in mid-caps this month due to elevated valuations. At the same time, you don't want to miss out on potential future gains.
The answer is to invest through smaller, staggered amounts—essentially, via regular plans. This lets you build exposure to your chosen fund category (mid-cap or small-cap) without the risk of entering at an unfavorable time.
One wealth advisor we spoke to notes that long-term wealth isn't built by timing the market, but by how long one stays invested in it, which is why staying invested for as long as possible should be the goal—and an regular savings plan is the best vehicle for that.
When it comes to calculating capital gains tax on regular savings plan investments, the FIFO (first-in, first-out) rule applies: units purchased earliest are treated as the ones redeemed first. Based on this, you can determine whether short-term or long-term capital gains tax applies. For equity funds, long-term capital gains tax kicks in once the holding period exceeds 12 months; for non-equity funds, this threshold is 24 months.
Where does Regular Fund Switch fit in?
A Regular Fund Switch works on a similar principle to Regular Savings Plan — it lets you temporarily park your money in one fund before gradually shifting the proceeds into your target fund.
For instance, suppose you want to invest ₹5 lakh in a small-cap fund, but given current high valuations, you decide to spread this out via regular savings plan over 10 months, investing ₹50,000 each month.
The question then is what to do with the remaining funds during those 10 months. You could keep them in a fixed deposit, or alternatively, park them in a debt fund yielding roughly 7–8% annually, and progressively transfer that money into the small-cap fund. This transfer mechanism is what's known as a Regular Fund Switch.
For retail investors, the smartest approach is often to combine Regular Savings Plan with Regular Fund Switch —this way, you not only average out your acquisition cost but also earn a reasonable return on your money while it waits to be deployed.
Ultimately, sound planning and disciplined investing remain the foundation of building wealth over the long run.
