Intermediate

Market linked investments especially stocks/shares are known to rise and fall steeply, mostly during periods of turmoil. Domestic and global events impact the Indian stock markets as a result of the Indian economy’s deep integration with other nations across the globe. As an investor, you would want to take advantage of these steep movements in the stock markets. One way to do so is by using the trigger investment plan facility (TRIP), offered by some of the mutual funds.

About Trigger Investment Plan (TRIP)

TRIP is simply a facility where you instruct the mutual fund company to transfer a specified percentage of your funds from one fund (source fund) to another fund (target fund) on the occurrence of a market event, e.g. the BSE Sensex crossing a specified level indicated by you in your investment application. Till this event occurs, your investment will remain in the source fund. TRIP can be used to transfer funds from a debt fund to an equity fund or the other way round, in order to benefit from stock market gyrations. They can also be used for redemption based on occurrence of predefined events. These events can be defined/created on the basis of change in value , change in NAV, defined time period and capital gains.

Fixed versus flexible TRIP

Mutual funds offer the TRIP facility under the following two options:

Fixed TRIP: In this case, a fixed percentage of funds are shifted from the source fund to the target fund on the happening of the specified event.

For eg: you caninstruct the fund house to transfer 25% of your Rs 1,00,000 investment from the source fund X to the target fund Y on the BSE Sensex crossing a specified level, say 30,000

Flexible TRIP: In this case, you need to specify a minimum percentage of funds to be transferred from the source to the target fund on the happening of a specified event. For instance, you instruct the fund house to transfer 10% of your investments from the source fund to the target fund on the BSE Sensex crossing a specified level. You also need to specify the percentage multiples in case of transfer of funds from source fund to target fund at different levels of the index.

For eg, you can instruct the fund house to transfer 10% of your investment from the source fund X to the target fund Y on the BSE Sensex crossing 30000 and another 15% if the BSE Sensex increases further to 33000 and so on. .

Using the above Fixed TRIP example, when the BSE Sensex crossed 30,000, 12,000 (10% of Rs, 1,20,000) was shifted to Fund Y and when the market touched 33,000, 16,200 (15% of 1,08,000) was shifted to Fund Y.

TRIP versus SIP/STP

The Systematic Investment Plan (SIP) and the Systematic Transfer Plan (STP) offered by mutual funds are similar to TRIP; however, there is one key difference. In case of both SIP and STP, a fixed amount is invested at periodical intervals irrespective of the market movements. For example, you can start a SIP of Rs 5,000 every month into an equity fund or start a STP by parking Rs 1 lakh in a liquid fund and instructing the mutual fund company to transfer Rs 5,000 every month from the liquid fund into an equity fund.

However, in case of TRIP, you can instruct transfers based on market movements, which helps benefit from such movements tactically and automatically. For instance, just like in the case of STP, you can park Rs 1 lakh in a liquid fund. But instead of transferring a fixed sum of Rs 5,000 at a fixed date each month from the liquid fund into an equity fund, you can instruct the mutual fund company to transfer say 25% of the invested amount into an equity fund if the BSE Sensex falls to 26,000 and 25% if it falls further to 25,000.

Advantages

Let’s say you want to invest in equity when the stock markets reach a certain index level. This will need you to track the markets on a daily basis. To avoid this, you can simply park your funds in a debt fund and use the TRIP facility to have funds transferred from the debt fund into an equity fund when the stock markets cross the level that you specify. Till this event occurs, your funds will earn the returns offered by the debt fund.

Once you make your TRIP instruction, there is no further action to be taken by you; the mutual fund does the rest for you.

Pitfalls

However, in case of a rising or bull market, you may lose the opportunity of investing in equity since your instruction of transferring funds from the source (debt) fund to the target (equity) fund may not get triggered since the index may not fall to the level you have stated.

The TRIP facility works best when the stock markets are volatile and not moving in one direction. With TRIP, you can use market volatility to your advantage.
A trigger once activated and transaction made, becomes inactive. A new application for activation of the same has to be made.