The recent weeks has seen the Sensex scaling the psychologically important mark of 20,000 and the nifty crossing the 6,000 mark. Therefore, a lot of concerns and debates are emanating from the investors/traders and the market men about the sustainability of the rally and valuations etc. However, we are positive on the equity markets on account of the strong domestic fundamentals. Some of the key reasons for long term bullishness on India are the Long term growth visibility (Economy growing at 8.5%),Democracy, Government reforms (Structural reforms in Oil sector, PSU divestment, Taxation), Relatively better perception on corporate governance (Compared to companies in China), Potential of opportunity (Population of 1.2 Bn, Growing middle class, increasing rural income) and favorable Demographics. (The dependency ratio in India likely to decline substantially over the next 15 years, bringing more working people, this would improve the income levels and drive inspirational levels. This is the long term growth driver in the country). However, despite the positive news flows from the domestic markets, the global data flows continues to remain mixed.
The Sensex over the month of September saw a sharp surge of 11.7%. The Mid and Small cap too rallied but was relatively lower with a 6.4% & 7.4% rise vis a vis the Sensex. The rally has been led by the huge liquidity inflows by FII�s. FII�s have been net buyers for CY10 to the tune of ~USD 18.4 bn. For the month of Sep, they were net buyers to the tune of ~USD 5.2 bn. However, the rally has been sharp, and the market is at fair valuations, we recommend investors to take the systematic Transfer plan as a investment strategy to invest fresh money into equity funds.
What is Systematic Transfer Plan?
Under STP, at regular intervals, an amount you opt for is transferred from one mutual fund scheme to another of your choice. Typically, a minimum of six such transfers are required while opting for STP. The investors can get into a weekly, monthly or a quarterly transfer plan, as per his needs. The investor has the option may choose to transfer a fixed sum from one scheme to another. The mutual fund will reduce the number of units equal to the amount you have specified from the scheme you intend to transfer money. At the same time, the amount such transferred will be utilised to buy the units of the scheme you intend to transfer money into, at the applicable NAV. Some fund houses allow you to transfer only the capital appreciation to be transferred at regular intervals.
What are STP�s?
Under STP you invest a lump sum amount in a money market fund and then a fixed sum is transferred from that money market fund to the equity fund.
For Example: If you have Rs 6 lacs lump sum to invest and you want to invest in HDFC Top 200, the steps you will have to follow are:
- Choose a good Debt fund or a Ultra Short Term Fund from HDFC MF, which allows STP to HDFC Top 200. In this example, we choose HDFC Cash Management Treasury Advantage Fund.
- Choose the STP frequency period either it can be can be weekly, monthly or quarterly frequency depending on the comfort of the investor.
- Invest all the money in the HDFC Cash Management Treasury Advantage Fund.
- Now you can start a STP of Rs. 10000/20000/30000 per month STP from HDFC Cash Management Treasury Advantage Fund to HDFC Top 200 Fund.
- Funds normally charge a exit load across all equity funds if exited before one year from the date of investment in equities.
This STP The investment strategy for equities/equity funds is recommended to be 40% lumpsum and 60% staggered equally over the next 6 months. Under diversified equity funds, we are recommending investments into a mix of large cap and flexicap funds. These funds are HDFC Equity Fund, DSP BlackRock Equity Fund, ICICI Prudential Dynamic Plan, Canara Robecco Diversified Equity Fund, Reliance RSF - Equity, Fidelity Equity Fund. Under mid cap funds, investments is recommended into DSP Black Rock Small & Mid Cap Fund, HDFC Mid Cap Opp. Fund, IDFC Premier Equity Fund (only STP is available).
