Skip to main content

Systematic Transfers of Funds can get much better returns

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

Since 2012, it has been a range-bound and fairly volatile time for the equity market. And though we ended 2012 on a high, the seesaw in the interim could have driven many an equity investor away. This is a pity, since those who stayed would have lost out on the 25%-plus return the market generated last year (illustratively, if they'd invested in the beginning of the year).


There's a lesson in this for most of us — even the smartest investors cannot time the market accurately. Therefore, the best way to deal with this is to ensure disciplined investing, irrespective of market conditions.


One of the most widespread and successful ways of doing that is through a systematic investment plan (or SIP as it is commonly known). The key benefits of SIPs, namely rupee cost averaging, compounding of returns and a disciplined approach to investing, are known to most investors.


Today, however, we will talk about systematic transfer plan (or STP) — an approach also based on the same principal as SIP, but, if utilized well, it can potentially lead to better returns.


As the name suggests, an STP is a facility that is offered by mutual funds to their investors to periodically transfer their investments from one fund to another. While the fundamental idea between an SIP and an STP is similar — that is investing small amounts regularly irrespective of market conditions — an STP also allows the investor to periodically switch funds between different asset classes. For example, the investor can hold funds in a low-risk debt fund and regularly shift part of it into an equity fund.


This strategy works if the equity market is volatile, with little visibility on whether they are going to trend upwards.


On the other hand, if the investor is heavily invested in equities and does not want to risk a sudden fall in prices, he/she can book profits by moving the amounts from an equity fund to, say, a lower-risk debt fund using an STP.


This has its benefits — the investor avoids the risk of timing the equity market and at the same time, the corpus earns market returns in the debt fund during the transfer period. It is, therefore, a flexible approach which reduces risk, and can help in optimal asset allocation, with good risk-adjusted returns.


Now, while this seems like a win-win for any investor, one needs to be cognizant of a few important points. First of all, an STP, like an SIP, is a strategy for mitigation of risk. As such, it protects you from losses, but to an extent. While it can alleviate the loss, it can also reduce the overall returns when markets are bullish.


The next point to remember is, as an investor, you need to follow the plan in a discipline manner because an STP's benefits accrue only when you follow the plan properly. Breaking the STP because of short-term market or interest rate movements can harm your investment in the long term.


The third point to keep in mind is, as an investor, you need to understand the underlying assets the funds are investing in and the stage of the market cycle. For example, it would be unwise to transfer money from debt to equity when the market is close to a peak value.
Similarly, it would be counterproductive to transfer money from equity to debt when the market is close to its bottom. Finally, as an investor with an STP, you need to consider and check thoroughly the taxation aspects of such a plan, which entails redemption out of the source scheme.


In the final analysis, it's an interesting and beneficial option if done well. So you could reach out to your investment adviser and inquire about this innovative route for investing.

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 in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

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

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. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. 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

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

Guide to pension plans in the form of Insurance

  Pension plans ensure that you are financially secure during your golden years. Take a look at the important aspects that you must keep in mind while opting for one...      Gone are the days when a leading criterion for choosing an employer was the type of pension plan that came with your salary package. Today, more important issues like matching of skill sets to job requirements, scope for personal and financial growth, etc. have come to the forefront. However, this has left individuals with the responsibility of financially planning for their golden years. And it's all for the best as there are a variety of pension plans available in the market to suit different individuals and their specific needs. WHAT ARE PENSION PLANS?     In a pension plan, you are required to pay premiums for a certain number of years and once you reach the retirement age, the insurer returns a lump sum amount that can be then used to purchase an annuity or stream of income for the rest of your life....
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

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
Read more

Fortis Mutual Fund

Fortis Mutual Fund, a relatively new player, it is still to prove its case and define its position in the industry. In September 2004, it came onto the scene with a bang - three debt schemes, one MIP and one diversified equity scheme. And investors flocked to it. Going by the standards at that time, it had a great start in terms of garnering money. Mopping up over Rs 2,000 crore in five schemes was not bad at all. The fund house has not been too successful in the equity arena, in terms of assets. Though it has seven equity schemes, it is debt and cash funds that corner the major portion of the assets. Most of the schemes are pretty new, and the two that have been around for a while have a 3-star rating each. The last two were Fortis Sustainable Development (April 2007), which received a rather poor response, and Fortis China India (October 2007). Fortis Flexi Debt has been one of the better performing funds, after a dismal performance in 2005. It currently has a 5-star rating. None ...
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