Most investors look at investment whenever they have lump sum amount of money in their hands, however in case of investments in equity, this may go awry especially at times when markets are trending at record highs like currently. This is because; analysis shows that lump sum investment benefits investors primarily during market uptrend, but fail to beat Systematic Investment Plans (SIPs) during market volatility. Investors with lump sum money in hand can look at parking their money in debt funds (primarily liquid funds), and transferring money on a regular basis through Systematic Transfer Plan (STP) into equity oriented funds, to mitigate risks of timing in equity. Another smart variant of STP is called as Variable Transfer Plan (VTP), which tries and derives more benefit for investors during market downturns. Read on to find out more.
There is no crystal ball to predict market movement. The mantra should be to invest regularly. A tactical strategy such as VTP will help investors to not only be disciplined but also be able to buy more during a downturn without actually following a market trend. On a cautious note, in VTP, whenever there is a sharp fall in NAV, the amount to be transferred can increase sharply and, hence, one should ensure the source fund has enough amounts to avoid a shortfall.
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