Systematic Transfer Plan during Volatile Markets

Imagine the following scenario:

You want to start investing in the equity markets in order to kickstart your wealth creation journey. When preparing for the same, you understand that the current outlook of the equity markets signal that the forward valuations of the equity markets stand at a significant premium to their 10-year long term averages. Since you plan to invest a lumpsum amount, this outlook makes you wonder whether this is the correct time to enter the equity markets.

Is it wise to hold off, or invest in such a scenario?

It may be not wise to hold off because if your money stays invested for a higher period of time in the equity markets, it could increase your potential for wealth creation. If that’s the case, what investment route should you opt for?

We are aware that in the short term, equity markets are volatile. This makes predicting the correct entry and exit points in equity markets quite challenging. Hence, “Systematic Transfer Plan” (STP) is one investment route that could ensure that your money gets invested systematically without the worry of accurately timing the markets.

Let’s understand STP through an Example…

Upon understanding the uncertain outlook of equity markets from his advisor, Aditya was faced with the dilemma of whether to hold or to invest. Hence, Aditya’s advisor suggested him to start an STP. The advisor urged him to start investing in HDFC Arbitrage Fund, and transfer a pre-decided amount systematically to HDFC Flexi Cap Fund. On hearing this, Aditya decided the following as part of the plan:

1. Investment Amount: ₹10 lakh
2. Source Scheme: HDFC Arbitrage Fund – Wholesale Plan – Growth
3. Start Date of Investment in Source Scheme: August 31, 2012
4. Target Scheme: HDFC Flexi Cap Fund – Growth
5. Start Date of Transfer to Target Scheme: January 31, 2013
6. Transfer Amount: ₹15,000
7. Frequency of Transfer: Monthly

Final Value of Aditya’s Investment in HDFC Flexi Cap Fund as on August 30, 2024 using this STP: ₹54.2 lakh*

*Source: MFI Explorer. Past performance may / may not be sustained in the future and is not a guarantee of any future returns. For complete performance details in SEBI prescribed format, please refer to page 5

Through such an STP, Aditya was able to ensure the following:

• We have often heard the expression – “Money that stays idle, does not earn any interest!” Hence, parking his money in an Arbitrage Fund for the short term allowed Aditya’s money to not stay idle in a savings account, as the Source Scheme continue to generate returns.
• Just like a Systematic Investment Plan, this plan also helped him to average out cost of investment as units were accumulated gradually over a period of time at different NAVs
• Transferring Aditya’s investment amount to a Flexi Cap Fund in a systematic manner allowed him to distance himself from the noise that can create chaos in equity markets. This was to keep control over his emotions, navigate through the market volatility, and stay invested for a long period of time

Your goals are attainable if you are willing to make the first step. When equity markets are uncertain, a Systematic Transfer Plan could be a useful investment path which could help achieve your long-term goals – as it may help you to mitigate risk of capital erosion due to unfavorable market timing.

HDFC Flexi Cap Fund

SIP Performance^ - Regular Plan - Growth Option

SIP since inception* of ₹10,000 invested systematically on the first business day of every month (total investment ₹35.60 lakh) in HDFC Flexi Cap Fund would have grown to ~ ₹2076.96 lakh by August 30, 2024 (refer below table).

CAGR returns are computed after accounting for the cash flow by using XIRR method (investment internal rate of return). The above investment simulation is for illustrative purposes only and should not be construed as a promise on minimum returns and safeguard of capital. SIP - Systematic Investment Plan.

*Inception Date: January 01, 1995. The Scheme is managed by Ms. Roshi Jain since July 29, 2022. #NIFTY 500 (Total Returns Index). ## NIFTY 50 (Total Returns Index). As NIFTY 50 TRI data is not available since inception of the scheme, additional benchmark performance is calculated using composite CAGR of NIFTY 50 PRI values from January 1, 1995 to June 29, 1999 and TRI values since June 30, 1999.

Past performance may or may not be sustained in the future and is not a guarantee of any future returns. Returns greater than 1 year period are compounded annualised (CAGR).Load is not taken into consideration for computation of above performance(s). Different plans viz. Regular Plan and Direct Plan have different expense structures. The expenses of the Direct Plan under the scheme will be lower to the extent of the distribution expenses/commission charged in the Regular Plan. ^Returns as on August 30, 2024. The above returns are of Regular Plan- Growth Option.

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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.