Dear Mr Sreekanth,
I have been closely following your blog for a while. You have generally advised to invest lump sum in a debt liquid fund and do a STP to the equity based funds.
Question: Do we have to choose only the liquid funds for the STP purpose?
What if we choose a 'Dynamic Bond' fund or 'Income Fund' or 'Gilt Fund' that has better returns instead of the liquid funds in the long term if I can take care of the Exit load like if exit load applies within 30 days then will start STP after 30 days only. Please advise.
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7 Answers
Hi Dear,
Yes it is a 'generic' suggestion indeed. The main point that we need to consider is the Feeding fund should be less risky/volatile. So, if you are comfortable with Ultra Short term debt fund then you may do STP from it. Also, if you have say STP for 1 year then you may get few extra returns from Ultra short term fund (than investing in a Liquid fund).
Thank you sir. Following your article below I am actually thinking of putting my money even in the next higher category i.e. 'Dynamic Bond fund'.
http://www.relakhs.com/debt-funds-types-benefits-risk-vs-return/
e.g 'Birla Sunlife Dynamic Bond' and STP to 'BSF Frontline Equity'
You showed in the graph that returns are higher as we move from Liquid-> Ultra Short-> Short -> Dynamic->Income->Guilt.
So Considering I would like to invest Rs50,000 in a debt fund and run STP for Rs2000 per month, the stored money would be exhausted/applied in market for the span of 2 years if not more fund added to it(Debt).
Hence thinking of whether investing 'Dynamic Bond' category would be a better trade off for me for the choice of STP.
Hi,
As mentioned in my previous comment, if you are comfortable with any other kind of debt fund (ultra short term or dynamic or gilt) you may opt for it. But do note the Risk Vs Reward relationship :)
By the by, how did you get the above 'Debt funds article' share as link?? Kindly advise. Do we need to do any html coding? Thank you!
Thank you. Appreciate your valuable continued support to many people.
With regards to mentioning your blog in my question above, I just pasted the following without quotes and it appeared as a link.
Again I truly appreciate all your blogs that are really of top quality. Now after liking your page on my facebook I get the new article reminders on my facebook page as well that keeps me up to date with all your postings.
Thank you!!
Thank you for liking our Facebook Page. Keep visiting and kindly share the articles with your friends.
Before you choose a debt fund for a systematic transfer plan or STP you need to know what is debt fund.
A debt fund is essentially a mix of debt and income securities such as corporate bonds, treasury bills and government securities.
When it comes to choosing a debt fund for STP, you need to remember that most fund houses have several debt fund types to choose from. They typically begin with a basic set of ultra-short term and liquid funds to short-term and long term funds (government securities for instance). You could essentially opt for STP from any of these funds to an equity fund you prefer. However, you need to remember that both, your outgoing fund i.e. the debt fund and the incoming fund i.e. the equity fund, should belong to the same fund house.
While choosing debt fund types, it is better to stick to low-duration funds such as liquid funds since when you opt for STP, the money parked in debt funds is meant solely for parking purposes, where the objective is capital protection and not making money. For STPs it is best to stick to liquid or ultra-short-term funds.
Regards,
Kamlesh Patel
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