Have you been caught off guard by markets that collapse like
a house of cards one day and shine brightly in the next session? If you are
sitting on the sidelines, wondering about the right time to jump in, fund
houses offer options that take the guesswork out of equity investing. The SIP
is the oldest and most widely used weapon against market volatility in the
small investor's armoury. "By investing in random time slots, the investor
is able to get a good average price," says Srikanth Meenakshi, director at
Fundsindia.com.
In the past few years, fund houses have fine-tuned the SIP mode of investment
and made it more sophisticated. You can now invest in weekly, even daily, SIPs.
You can tweak the investment amount or even choose the index level at which you
want to invest. Let us look at the various innovations in the SIP and how you
can use them to your advantage in today's volatile markets.
Systematic transfer plan
If you have a lump-sum amount to invest, experts advise that you put it in a
debt fund and then start a systematic transfer plan (STP) into an equity fund.
STPs can be of different intervals-weekly, monthly or quarterly. "The STP
is a richer version of the SIP and follows the same concept of value averaging.
Markets will always be volatile. The only way to manage it is through time
diversification and asset allocation," says Kalpen Parekh, deputy CEO, IDFC
Mutual Fund.
To start an STP, the investor must have a certain minimum amount in the debt
fund. HDFC Mutual Fund, for instance, requires that the source scheme should
have at least Rs 12,000. Also, the transfers are done on designated days of a
month. This option suits investors who have lump-sum money, such as bonuses or
sale proceeds from assets.
Flexible SIPs
One of the biggest innovations in the SIP, this allows the investor to change
the SIP amount depending on the market level. ICICI Prudential's Flex STP plan,
for instance, transfers a higher amount when the markets are down and reverts
to the pre-set STP amount when they rise again. So, the investor is putting in
more money when stock prices are low and holding back when the index is up.
This adds that extra zing to his efforts at rupee cost averaging.
However, only a few mutual fund houses, such as Reliance Mutual Fund, HDFC
Mutual Fund and ICICI Prudential, offer the option of flexible SIPs and STPs.
But there are intermediaries who can help investors in other mutual funds. One
can invest through Fundsindia.com and can call the distributor or send an
e-mail for raising the investment amount. "Under the Flexi SIP Investment,
the investor can increase the amount with the click of a mouse or a simple
phone call, or let our system work through pre-set parameters. Instead of
investing, say, Rs 5,000 a month, he can go with Rs 7,000 or Rs 10,000 if the
markets are down. In this manner, he will get a much lower cost of entry,"
says Meenakshi.
Trigger option
Mutual funds also have trigger options to help you invest or book profits at
certain index levels. When the index drops to a level predetermined by the
investor, the fund transfers money from the debt scheme to the equity plan.
Under the HDFC Flexi Index plan, the investor can choose 3-5 index levels and
specify how much amount in the debt plan should be transferred to the equity
scheme at each level. "For instance, he can choose 15% to be invested when
the markets drop to 16,000, the next 15% to be invested when it drops further,
and likewise at varied index levels," says Surajit Misra, executive vice-president
and national head, Bajaj Capital.
Similarly, when the markets rise beyond a level specified by the investor, the
equity units can be sold and money transferred to the debt scheme. More than
six fund houses offer these facilities mostly for their large-cap and mid-cap
funds. Here, you can invest a smaller quantum of money at select market levels
or NAV levels.
Weekly & daily SIPs
The SIP investor should not pay heed to the daily ups and downs in the market.
Yet, if you are worried that the markets will rise when your SIP is due and
decline subsequently, you could consider spreading your investments across the
month. "If the investor wants to put in Rs 20,000 every month, he can
split it into four different SIPs on different days of the month," says
Paul D'Souza, proprietor of Cuzinns Investment Services.
Some funds also give the option of weekly and daily SIPs and STPs. However,
experts believe the daily mode is not a good option because it serves no
meaningful purpose. Even fund houses are having second thoughts about this
facility, which increases their back-office work by over 20 times compared with
that in the monthly SIP. "Under daily SIP, the cost of operation will be
high for the mutual fund house. It is operationally inconvenient," says
Misra.
Even financial planners have seen their clients bearing the brunt of daily
investments from their chartered accountants. "In case of daily SIPs, the
chartered accountant faces a problem as he will have to feed in 300-500
transactions while calculating capital gains at the time of filing your returns
when you book profits," says D'Souza.
Instead, a weekly STP works better because the volatility is getting trapped
and calculations are not much of a bother, say experts. "Whether you
invest every month or over 365 days, the outcome is not too different. However,
there is huge paperwork involved," says Parekh.
Considering this, the handful of fund houses that have been offering the daily
SIP option are mulling over discontinuing these. "We have asked our sales
team to take a re-look as there are no takers for them. Besides, operationally,
these are inconvenient both for the AMC and the investors," says a mutual
fund spokesperson.
Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/use-sips-to-fight-market-volatility/articleshow/9846135.cms?curpg=2
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