SOME MORE
ON SIP, STP AND BULK PURCHASE
Two year ago I had written an article in Marineinsight.com
laying out the comparative advantages of STP Vis-a -vis SIP. I had tried to
explain why STP works better for the Marine Professional rather than SIP. The
Mutual Fund industry has gone so much overboard in repeating the word SIP that
people have come to think of SIP as a product rather than a method of investing
in Mutual investing.
However, as long as methodical investing goes Mutual Funds
are unparalleled in any country including Philippines, Sri Lanka, Singapore,
Hong Kong and even Russia, the only limiting factor being their political
conditions. As long as a Marine Professional is investing regularly after
selecting the right fund, he can actually fine tune his strategy to get the
best out of assets.
I will again attempt to unravel, demystify and simplify the above three methods.
Bulk Investing: is simple .When you buy for a appreciably
large amount like $1000 and above one time thinking that the market conditions
are correct in your perspective, it is called bulk investing. This may happen
once in a while or irregular intervals.
SIP or Systematic Investment Plan: is an automated system
when an amount determined by you is
automatically transferred from your bank account to the Fund that you have
selected to invest. In this paperwork is done through the fund house who sends
the information for conformation to your bank and the process can take upto one
month to start. This more often than not takes place once a month.
STP or Systematic
Transfer Plan: is another method where a fixed sum is shifted or
transferred from one fund (you can call it source fund or S-Fund) to another (
call it Destination or D-fund).For our purpose of primary investing this takes
place mostly from a debt fund to an equity fund. STP cab any frequency Monthly,
weekly and even daily.
Now let me point out a few points regarding inherent
advantages of STP:
1.
For Seafarers, the main issue is the irregular
availability of funds. Even for the six months of work due to the uncertainty
of joining and signing off, he remains uncertain in investing.
Hence allocating funds to SIP becomes
difficult because one has to make a large outlay in the NRE account. Instead s(he) gets inclined to make lump sum
investments.
2.
With STP he is secure in the knowledge that if
the liquid fund runs out he need not worry as there is no liability.
Additionally the funds in the Debt fund which is the S-Fund are for his use
whenever S(he) wants.
3.
Cancellation of STP takes 3 minutes online
whereas SIP cancellation can take more than 2 months.
4.
With STP, apart from the equity funds even the
debt fund ( which is your source fund) is earning and appreciating. If you
check immediate past 2 year performance equity and debt funds have performed
similarly. This may be an aberration but a fact nonetheless.
5.
With SIP one's money in NRE savings of fixed is
almost lying idle and depleting with inflation.
6.
With our kind of salaries the amount that one
needs to invest per month , for productive gains, one has to invest a large
amount per month.
If you put that in 1 SIP per fund, from my
point of view it is as good as bulk purchase.
7.
Now consider a single SIP off₹50,000
split into 5 STPs per week. And you have truly diversified your risk.
Plus the amount that was in the debt funds in between these 5 STP dates also
continues to appreciate at a higher rate than in a bank account.
Last week's fall of 5% and the NAVs at
which the last 2 STPs were booked will prove my point.
8.
With the weekly STPs , one is more in touch with
reality and any fall in the market like
the last week's, it will give you opportunity to put in extra lump sum to extract more out of
the situation by switching about 5 to 10% into your equity funds.
9.
A single monthly SIP would have deprived you of
the situational opportunity.
10.
Last but not the least when you are on board
switching from one fund to another will take much less time than making fresh
purchase from your bank account.
A lot of advisors do not go into sufficient depth and
explain to the investor that a falling market provides you with an opportunity
like a time machine- to go back into time and invest at a level which was much
into the past. Hence a person who is earning and earning like the Marine Professional
does, can actually go back into time and invest at a level which was when he
did not have that money.
SIP is a good strategy for a modest salaried investor who
never has a large chunk of money except when he gets a bonus. It’s effect on
wealth generation for a seafarer reduces when coupled with the money lying idle
in the bank account.
I cannot but repeat
and repeat, that try and automate your method of investing by utilizing the
tools. Mutual Funds provide with immense flexibility and convenience. You just
have to use the tools to form a long ranging plan and portfolio and then keep
investing and increasing that investment amount as you progress through to the Captain
or Chief Engineer’s rank. The first step is the most important to take , since
I have found that people drag their feet
over selecting their first fund for
years together losing out on opportunity every day.