Conceptual question on mutual funds

[justanothernaam]

Hi!

I'm an absolute beginner in investment on stocks and mutual funds. So if the following is too obvious, and/or the terms I'm using are incorrect, I'm sorry.

I want to understand the difference between the following two scenarios:

Option 1:

I sign up for one SIP of amount ₹10000/- in scheme A of mutual fund P through platform X. I allow X to automatically deduct ₹10000/- from my bank account on 1st of every month on a specified date.

Option 2

I invest a lump sum amount of ₹10000/- in scheme A of mutual fund P through platform X. On 1st of every month, I make one more investment of Rs. 10000/- in the same scheme A of the said fund P through the same platform X manually, making it as another lump sum investment.

Question

I want to understand the differences between these two. If I understand correctly, after the first payment by any of the option, I'll receive a folio no, which will track the number of units I purchased at the current price. My question is regarding the handling of future payments.

I can think of these scenarios:

1. For each month's payment for either option, a new folio number will be assigned to keep track of the units purchased at that time.
2. For each month's payment in either option, the amount and number of units will be updated in the existing folio number (similar to recurring deposits).
3. For SIP, it'll capture under one folio, and for lump sum investments, it'll be tracked separately.

I want to know which of these scenarios actually happens. If it's required, I'm planning to use Paytm Money (so X is that). Hopefully it doesn't matter, but wanted to be explicitly specific.

Also, I understand my option 2 means more effort from my side as I have to make the payment manually. But apart from that, are there any financial pros and cons of one option over the other?

If someone can help me understand these doubts, that'll be very helpful.

 

[ujjwalsaha]

For SIP, it will be assigned in the same folio by default
For lumsum manual investment, you will have to choose manually the folio at the time of investment. Obviously you will choose the previously created folio.

 

[justanothernaam]

Thanks for the info regarding options during lump sum payments.

But as I said I'm new to this, why should I choose same folio is not obvious to me. That's why I was asking this:

are there any financial pros and cons of one option over the other?

If you please expand on this, it'd be very nice.

 

[TraderVader]

Its better to choose 1 folio number per AMC for sake of convenience - easier tracking in MF reports which are listed folio wise and redemptions on most platforms are selected folio wise.
The inconvenience may not be apparent now - but as your holdings increase it will become increasingly irksome. If you setup a new folio every month - in a few years time you will have a pretty long list of folios for the each fund.

 

[ujjwalsaha]

Thanks for the info regarding options during lump sum payments.

But as I said I'm new to this, why should I choose same folio is not obvious to me. That's why I was asking this:

If you please expand on this, it'd be very nice.

Folio is like folder. Hence, it is better to have all the units of a same mutual fund in a single folio so that keeping track becomes easy.

There should not be any financial difference between option 1 and 2 other than in SIP, it will be automatically done by the system whereas in option 2 you have to do manually. in option 2, you may forget to invest sometimes
option 1, you have to keep the money in your account

 

[justanothernaam]

Thanks for the explanation, both of you.