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

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...
Read more

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...
Read more

Mutual Funds: Past Performance is not just everything

Many a times your agent / distributor / relationship manager tries to push you some mutual fund schemes by enticing you with a typical sales pitch…"Sir, this scheme has generated 20% returns in the past one year." And this sales pitch often gets louder when the market conditions have been favourable. Some of the agents / distributors / relationship managers have another unique way of luring you. They say, "Sir / madam this scheme has been awarded the best scheme award in the past by a leading business channel"... And hearing all these sales talks you investors very often get attracted and sign a cheque in favour of the respective scheme.   But please ask yourself do you hear these sales talks when the capital markets turn turbulent? Why is it so that your agent / distributor / relationship manager avoids talking to you during turbulent times of the capital markets and doesn't boast about returns generated by the respective funds or awards being conferred on t...
Read more

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Read more

PF e-Passbook

  Provident Fund e-Passbook   The Employees Provident Fund Organisation now runs an e-passbook service that enables members to log in and access their provident fund accounts . This facility enables tracking of the money and ensuring that the employer's contribution has been deposited into the account. This facility is available to those whose accounts are with the central provident fund commissioner for maintenance and can be availed at members.epfoservices.in . Registration A member can register at the portal easily by using PAN , Aadhar or passport number as the log in and the mobile numbers as the PIN . This combination enables easy retrieval of information. Accounts After logging in, the member has to choose the state where the employer is located, and enter the code number of the employer, account number and name. These details can be obtained from any existing PF document . PIN To download the passbook, the member will request...
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