MFs draw up flexible plans to help investors graduate to equities

ICICI PRU, HDFC MF HIT MARKET WITH ‘SWITCH PLAN’; UTI TO ENTER SOON

IN an attempt to give investors the best of both worlds, mutual fund houses have begun offering flexible asset allocation plans that allow unitholders to keep increasing their exposure to equities while starting off in a debt fund.

These funds, which essentially bear resemblance to dynamically managed funds, allow investors to balance their investments in favour of equities while gaining advantage of the current interest rate trend through investment in fixed income.

Also known as ‘switch options’ in distributors’ parlance, these plans help investors to move money steadily into equity funds. While ICICI Prudential MF, through ICICI Prudential Income Opportunities Fund- systematic transfer plan STP, and HDFC MF, through HDFC Flexindex Plan, have already launched switch plans, UTI MF will soon launch a fund that will enable investors to shift investments across debt and equity schemes.

“Though valuations have fallen steeply, it is dangerous for investors to go on a share-buying spree. A switch plan MF scheme is better way to steadily increase their exposure to equities at different price levels,” said UTI MF chief marketing officer Jaideep Bhattacharya.

“Investors in switch funds derive post-tax investments benefits; in specific fund structures, investors need not mention investment horizon as well,” added Mr Bhattacharya.

Switch plans enjoy the flexibility to invest entire net assets in equity or debt instruments after the swap period (about one year in most cases). In certain funds, investors decide the quantum of fund that is released periodically into equity assets. An example for this is the HDFC Flexindex Plan. The plan allows investors to select four BSE Sensex levels, on attaining which investors can transfer appropriate amounts (from the minimum investment — Rs 50,000) into any pure equity funds managed by the fund house.

The ICICI Prudential Income Opportunities plan is bundled with a systematic transfer plan, wherein a certain sum of money (from a minimum investment of Rs 20,000) goes into the ICICI equity fund selected by investor. Investors can opt for a 52-week or 12-month STP and benefit from the changing macro environment. At the end of the switch period, the entire fund (plus the gains from investing in debt, if desired so by the investor) would be invested in equities.

“The year 2009 will be for rebalancing allocation systematically in favour of equity. Debt will continue to give above average returns, but we feel equities will do well towards the end-year. By investing into a switch fund, investors will be able to participate in the best of times of both debt and equities,” said ICICI Prudential MF head-retail sales Vikram Kaushal.

Usually, there are no separate load structures for switches done in these schemes. The transfer of the amounts from the source scheme will not attract any exit load and the subscription in the target scheme shall be subject to payment of entry load. There could be varying exit loads (depending on the amount invested) for premature redemption from the target scheme.

Source : www.insuremagic.com