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

Retirement planning from a long-term perspective

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds     `HOW green was my valley'. This title comes from a movie I had watched many years ago. A little boy's journey into adulthood and the story of a Welsh valley's turn of-the-century descent from pristine paradise to despoiled coal mining.   I thought of the title because it is comparatively reflective of a person's life ­ the glorious years when he is earning and the sun down years when he is not having his regular job and, hence, his living standards comes down. The reason is a combination of things. Inflation of food items, transport, increase in health related costs in the later years of life and increase in expenses in almost all basic amenities of life. In India, the social security system is almost non-existent. In some states, wherever it is available, the scales of benefits are extremely modest...
Read more

CNX Midcap vs BNP Paribas Midcap Fund

BNP Paribas Midcap Fund - Invest Online   Te  performance of BNP Paribas Midcap Fund  – which has across the last 3 years generated superior returns over the benchmark – especially when the markets have gone down the fund has handsomely outperformed the benchmark preserving the capital of the investors. The fund has been able to do this only due to the superior stock selection process ( BMV approach) that is diligently followed at BNPP.   Highlights of BNP Paribas Mid Cap Fund:   Investment Objective : BNP Paribas Mid Cap Fund gives an investor exposure to invest in the various quality midcap stocks. The fund also has some exposure to large as well as small cap stocks.   Investment Approach : BMV ( Quality and scalability of Business →Good Management → Reasonable Valuation ) with Bottom-up stock picking.   Most of the investors are way happier if the fund that they have invested in is a significant Outperformer in tough times than in Good ti...
Read more

LIC's JEEVAN SHIKHAR

  LIC's Jeevan Shikhar is a participating, non-linked, saving cum protection single premium plan wherein the risk cover is ten times of Tabular Single Premium. The proposer will have an option to choose the Maturity Sum Assured. The premium payable shall depend on the chosen amount of Maturity Sum Assured and age at entry of the life assured. This plan also takes care of liquidity need through its loan facility. The plan will be open for sale for a maximum period of 120 days from the date of launch. 1.   BENEFITS   : a) Death Benefit: On death during first five policy years: Before the date of commencement of risk   :   Refund of Single Premium without interest. Single Premium mentioned above shall not include any extra amount if charged under the policy due to underwriting decision and taxes. After the date of commencement of risk   : "Sum Assured on Death" equal to 10 times the tabular single premium shall be payable. On death after completion of five policy years but b...
Read more

Investment Strategy - What is Sector Rotation Theory?

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)   The economy goes through cycles : it expands for a few years and then contracts. Study of historical data suggests that different sectors tend to perform well on the stock markets during different stages of the economic cycle. While history never repeats itself exactly, some broad patterns tend to recur. Investors can take advantage of the sector rotation theory to move their money from those sectors that have seen their best times to those that are likely to do well in future.   The person who developed the sector rotation theory is Sam Stovall, chief investment strategist at Standard & Poor's. He developed this theory by studying data on economic cycles going as far back as 1854 provided by the National Bureau of Economic Research ( NBER ) of the US.   When trying to correlate stock-market perfor...
Read more

Rajiv Gandhi Equity Savings Scheme (RGESS) set for launch this week

The finance ministry is set to notify the Rajiv Gandhi Equity Savings Scheme ( RGESS ) this week.   Though Finance Minister PChidambaram had approved on September 21, the scheme announced in this year's Budget, and had said that the revenue department will notify the scheme and the Securities and Exchange Board of India ( Sebi ) would issue relevant circulars within two weeks, it is yet to become operational.   A senior finance ministry official said the revenue department was expected to notify the scheme any day now to attract retail investors to the equity segment.   He added that Sebi was not required to issue any circular for the operationalisation of the scheme and that after the issuance of the revenue department's notification, investors would be able to avail of the benefits of the scheme.   The official accepted that implementation of the scheme had been delayed due to the deliberations on inclusion of mutual funds ( MF ) in it.   ...
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