As a financial planner I always have a question: What is the market looking like?

The simple answer is “I don’t know” but simplicity is extremely rare in India. Everyone is pretending to be an expert in everything. So, being a financial planner, how come I know nothing about the market? Again, simple answer, I really don’t know what market we are talking about? Debt market, commodities, equity, or fish market.

Obviously, I am being asked this question with respect to the equity markets, especially the Sensex. I shouldn’t have realized this. Well as of now, the BSE Sensex is hovering around the 60000 mark, everyone knows that. And what is the market looking like? Sure, it looks great!

But I am being asked where do I see the market in the coming few months. The simple answer is I don’t know. In the last 25 years I have not met anyone who has correctly predicted the short-term movement of the equity market more than once or twice.

There are more than 7000 listed companies in India. The top 30 in terms of trading volume fall in the Sensex or Sensitivity Index. Top 100 companies make up BSE 100, top 200 make up BSE 200 and so on. I will be pleasantly surprised if someone can give me the value of BSE 100, 200 or 500. I will give 100 bucks to anyone who can give me at least 2 of these figures, even if they are closer to 1000 points.

For your information, let us tell you that the index value of BSE 100 is 18200, BSE 200 is at 7700 and BSE 500 is at 24000. You can play this game with someone who claims to know the future of equity market in India.

In the last one year, a record number of demat accounts have been opened in India. This will widen the equity investor base in our country. We have seen this trend over the years. New customers come to the market only when the markets are high. However, investing in lump sums can expose investors to the risk of incorrect timing in the market. And waiting indefinitely for the right opportunity to enter the market can result in losing valuable returns.

Systematic Transfer Plans (STPs) offer one solution to this problem. What are STPs? STP allows investors to invest a lump sum amount in a source plan and transfer a pre-determined amount to a target plan regularly. Usually, liquid or ultra-short-term funds are used as source schemes and equity/balance funds are preferred. Target plan option. However, STP can also be used to systematically reduce equity exposure, especially when markets are at a peak.

Why STP?

• STPs allow a disciplined approach to investing staggeringly in equity funds, especially when the investor has a large investable amount.
• STPs protect against market volatility as the cost of investment is averaged over the investment period
• Hassle free change in asset allocation from debt to equity and vice versa
• Source fund continues to generate returns
• Removes emotional bias from the decision-making process

When to invest in STP?

Following are some examples where STPs can solve your investment woes:

• property sale proceeds
• Bonus salary received at the end of the year
• Inheritance
• Large investments in fixed deposits/savings accounts require a change in allocation.

STP vs SIP

• STPs and Systematic Investment Plans (SIPs) serve different investment objectives
• STP caters to investors with lump sum funds at their disposal, who intend to short their investments in equity markets to avoid market timing.
• SIPs are suitable for investors who have a steady stream of inflows, a part of which can be invested in equities in a disciplined manner.

why does it work

Using STP systematically is one of the best investment strategies for retail investors looking to invest a lump sum amount. It enables investors to capitalize on market boom and at the same time it reduces the risk of capital erosion due to unfavorable market timing. However, investors can take advantage of STP only if they follow the strategy consistently. Closing STP on the account Short term movement can prove to be detrimental to the financial planning of the investors.

Views are personal: The author is Soumyajit Ghosh, Director, WealthApp Distributors, Kolkata

Disclaimer: The views expressed are those of the author and are personal. TAML may or may not subscribe to it. The views expressed in this article/video are in no way trying to predict the markets or their timing. The views expressed are for informational purposes only and do not imply any investment, legal or taxation advice. Any action taken by you based on the information contained herein is your sole responsibility and Tata Asset Management will not be liable in any way for such consequences. action taken by you.

Mutual fund investments are subject to market risks, read all the scheme related documents carefully

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