Skip to main content

Want to use volatility in equity market to your advantage? Go for STP

Buy Gold Mutual Funds

Invest Mutual Funds Online

Download Mutual Fund Application Forms

Call 0 94 8300 8300 (India)

OVER the past few years, investors have been pampered with the concept of systematic investment plans (SIP), especially, when it comes to investing in mutual funds. A quick recall of its evolution may sound something similar to the following paragraphs. Investors, initially relied on his or his adviser's judgment to time investments in shares/equity funds, but, found the whole exercise futile and many-a-times found themselves caught on the wrong side of the markets. Thus, the concept of SIPs was created to tide over the fallacies of market (mis)timing.

Over time, innovative thinking helped evolve the concept of value averaging investment plans to enable better cost averaging. Under such plans, the monthly contribution varies from month to month depending on the market performance. Accordingly, the plan allows monthly contribution to be increased if the markets trends lower and decrease contribution in good times.


Thus, a value averaging investment plan helps in buying more when the markets are down and less when the markets rise. SIPs are quite a hit among investors who prefer to invest every month out of their savings. This is extremely necessary during high periods of volatility in markets like the ones experienced at present.

A systematic transfer plan (STP) positions itself as a good solution here.


Under this plan, a lump sum is invested in debt fund with instructions to invest a fixed sum at every fixed interval (which could be weekly, fortnightly or monthly) to the designated equity fund till the target value of investment in the equity fund is achieved. Recently, a new concept called swing STP has been introduced by HDFC Mutual Fund. The objective of this facility is to achieve the total market value in the equity scheme by transferring an amount from the debt scheme at regular intervals in a way so as to increase the target market value of the units in the equity scheme systematically by a fixed amount on the date of each transfer till the swing STP tenure.
The amount to be transferred will be determined at on the basis of the difference between the target market value and the actual market value of the equity fund as on the date of transfer.

In the above example for a swing STP, the total market value will be Rs 5 lakh at the end of 10 weeks. Thus, the objective is to increase the market value of the equity fund by Rs 10,000 every week by transferring funds from the debt fund. If on the designated day of transfer during the second week, the value of the equity fund is Rs 12,000, then, only Rs 8,000 will be transferred from the debt fund. If on the designated day during the fourth week, the market value of the equity fund is Rs 28,000, then, Rs 12,000 will be transferred from the debt fund to achieve the targeted market value of Rs 40,000 at the end of four weeks.

At present, swing STPs offer transfer facility at week ly, monthly and quarterly intervals, to be selected by the investor. In addition to the above, the facility has a unique `reverse transfer' option. Under this option, if the market value of units in the equity fund on a particular transfer date is higher than the target market value as on that date, then, the excess amount will be transferred from the equity fund to the debt fund. Thus, the total amount invested through a swing STP to an equity fund may be higher or lower on account of market fluctuations.

To sum up, swing STPs are yet another tool that can be utilised by investors to tailor their investment strategies as per their goals to take maximum advantage of the fluctuation in equity markets.

Happy Investing!!

 

We can help. Call 0 94 8300 8300 (India)

 

Leave your comment with mail ID and we will answer them

                        OR

You can write back to us at prajnacapital [at] gmail [dot] com

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds        Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds     Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds    Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds             Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds              Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Gold Mutual Funds             Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...
Read more

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...
Read more

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...
Read more

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now