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nformation provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.
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Going by year-on-year figures, equity inflows into mutual funds have slumped 60% since January 2018. But SIP inflows have consistently increased since the start of the financial year, rising 20% to ₹8,064 crore in January 2019 from April 2018.

Why the change?
People invested dramatically in mid cap funds that have not performed well in the last 1-1.5 years. Some are even down 15-20%. The industry also saw an outflow into hybrid funds, which generally claim to provide monthly dividends but of late those dividends also stopped and there has been an outflow in this category. After a good run of three years, mid-caps have not performed well in the past one year and these investors who are redeeming now had joined in the end of those three years. SIPs will continue to witness higher inflows.

What should you do?
Experts suggest that there is no need to worry. The macros are doing well: rupee, oil and inflation are under control, GST collections were over ₹1 trillion, so while people should be investing in equities. Since investors enter in equities based on past or recent returns, the inflows have sunk in equity. Hence people are staying away, but what people should do is invest in equities as the valuations are not moderate, in flows into emerging markets has risen, earnings estimates for upcoming quarters is also up.

We all know the concept and logic of systematic investment plans (SIPs), which is to average out the cost of your investments through disciplined purchases, particularly when the market is down. Whenever we think of SIPs, consciously or unconsciously, we think of equity investments, not debt. There is a reason for this: the equity market is relatively more volatile and the significance of buying at dips is that much stronger. However, there is merit in having an SIP in your debt fund allocation.
The phase of life in which you are earning, saving and building up your kitty for retirement and other life goals, you are doing it crumb by crumb, every month. You may have a lump sum for investment once in a while, but not every month. When you are doing an SIP in equity funds, let’s say monthly, you are not only averaging out (also known as rupee-cost averaging), but also putting your available resources to gainful use as it will earn over a long period of time. Hence, there are two aspects to it: availability of investible funds with you and the benefits of disciplined investments. Wherever you are allocating your resources, be it equity funds or debt funds or real estate (i.e. EMI on your home loan) or alternate investments (for example, gold, commodities etc.), the aspect of time-bound availability of money, as and when you earn, remains the same across.
Time-bound availability of funds being a common factor across your investments, comes down to the efficacy of the investment and the importance of allocation. In the importance of allocation to various investment avenues as per your risk-return profile and horizon allocation, there will be some space for fixed income funds. This makes a case for time-bound allocation to debt funds, which in other words is SIP. To think of significance of investing in equity at various price points, in a way, home loan EMI is akin to an SIP, in the sense that you are investing every month in your real estate. That is, we use the method of systematic investments in other avenues as well, but maybe we are not conscious of it.
The advantage of cost averaging will be there in debt funds as well, maybe to a lesser extent than in equities. Mutual funds are investments in the market, which by definition are subject to fluctuations every day. If you follow the discipline of SIP for a long period of time, you will be buying at dips as well and thereby averaging out your costs. There is no point in timing the market, at least in the short run. As an illustration, for most part of calendar year 2018, yield levels on bonds were rising i.e. prices were coming down. Net asset values or NAVs of long-portfolio-duration debt funds were moving up, but at a slower pace than liquid funds, in 2018. If you were considering a lump sum investment in non-liquid debt funds, you would have balked after seeing the performance of the funds in the recent past. If you were committed to a long-tenure SIP, you would have continued your purchases through the year and averaged your cost on the lower side. Conservative investors, who do not usually venture beyond bank term deposits or other contractual-return investments, can try out investment in short-portfolio-maturity debt funds. The SIP installment may be looked upon as a recurring deposit, where the installment is paid every month or some other frequency. Debt mutual funds are market-related investments, but an SIP over a long horizon in a money market /short-maturity debt fund will see through market cycles. Returns over an adequate SIP execution period/subsequent holding period will give decent returns, and over three years, will give tax efficiency as well. For investments done through SIP, tax computation is done on first-in-first-out i.e. FIFO basis; each installment of investment should complete three years of holding. As long as you are satisfying this condition, with the benefit of indexation for computation of long-term capital gains tax, your net of tax returns will be palpably higher than a bank term or recurring deposit.
What is it?
As the name suggest, systematic transfer plan (STP) is the process where you can automatically transfer from one mutual fund plan to another one. In cases where the money is already invested in units of mutual funds, the process to switch from one fund to another happens through STP.

Is it useful?
According to experts, it helps in reducing market timing risk. STP reduces market timing risk and also enables the investor to earn more from their source corpus through their debt fund investment. However,an STP can also be effectively used for transferring out of equity to book profits or change asset allocation (especially in situations where goal time is nearing). In such situations, transferring from equity fund to liquid fund has the same benefit as STP into an equity fund avoiding market timing risk. This can be used to affect a more beneficial systematic withdrawal plan.

How should you use it?
If you are not sure how to use STP effectively, you should seek help from a financial planner. STP serves to average out the cost of investment when you have a lump sum to invest in equity fund. For instance, If you have Rs. 10 lakh to invest in equity fund, invest it in the liquid fund and register for monthly STP of Rs. 1 lakh to equity funds. This way, the amount will be invested in equity in 10 months, averaging the cost. The amount and duration can be decided based on the market situation. A planner can help if you are not sure how to do it.
Please do not reply back to this mail. This is sent from an unattended mail box. Please mark all your queries / responses to
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.