How is STP beneficial?

Systematic Investment Plan (SIP) is the term that most of the Mutual fund investors are familiar with. But one of the type Systematic Transfer Plan (STP) is not often fully understood or used in right way by some of the investors.

 STP is a variant of SIP. STP is essentially transferring investment of one asset or asset type to another asset or asset type. The transfer happens gradually over a period.

Transfers are mostly made from debt funds to equity funds if the market is doing well and vice versa if the market is not performing well. The STP can be classified based on the amount transferred from the source scheme to the target scheme. If a fixed sum is transferred from the source to the target scheme, then it’s called Fixed STP, and if the sum transferred is the profit part of the investment of source scheme, then it’s called Capital Appreciation STP.

First, STP is a risk mitigation strategy. It will protect you from any adverse loss to a large extent. Investors should be clear about this. All risk mitigation strategies cap the loss but also reduce returns when market is bullish. Secondly, investor should follow it with discipline. STP, just like SIP benefits only when followed properly. Breaking STP because of short term movement of market can harm your investment in long term.

 Franklin India Opportunities Fund - Weekly Chart

 

Franklin India Opportunities Fund (G) is an open ended diversified equity fund  that invest in diverse mix of securities that cut across sectors along with it focuses on capitalizing long term growth opportunities by investing in Indian Economies. This fund has 92% exposure to Equity.

The fund has selected sectors or stock exposure based on four prominent themes as follows:

1.  Companies operating in areas where India has a strong advantage

2.   Global competitive Indian companies with potential to participate in global opportunities

3.   Undervalued companies

4.   Companies best positioned to take advantage of opportunities arising from a growing economy

Top Holdings and Sector Allocation for this fund are shown below:

 Top 5 Holdings:

Company	% Assets	P.E. Ratio
HDFC Bank	6.11	24.40
Yes Bank	4.52	19.49
Larsen & Toubro	4.29	27.17
Equitas Holding	3.82	35.09
ICICI Bank	3.43	15.53

Sector Allocation

Sector	(%)
Banking/Finance	28.46
Automotive	8.80
Technology	7.78
Engineering	7.63
Oil & Gas	6.45
Pharmaceuticals	6.09

Returns: Considering past 1 year the fund has managed to provide us with the returns of approx 28% but from past 3 months equity market is going through downside corrections which have affected the NAV performance which we can witness in the above weekly chart.

Returns: As on Aug 09, 2016

Period	Returns%
1 year	2.62
3 year	28.39
5 year	16.18

Risk Profile: We would suggest someone comfortable with investing in complete equity with diversified holdings of large cap stocks and at the same time can take risk to get better returns can opt for this fund. Although for some time the fund will underperform until it completes its corrective pattern. Fresh investment must be done post the completion of correction on downside and till that time one can have conservative approach for the investments.

In short, from medium term perspective investments must be done in staggered fashion as of now and one more pullback from here on will provide excellent opportunities for lump sum investments.

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