Tata Mutual Fund has launched Tata SIP Fund -- 3 years closed-ended hybrid scheme. The fund propagates systematic investing into equities.
Expert believe that, "Considering the current level of the market and the likelihood of increased volatility, systematic investing can be a good strategy for existing investors as well as those who would like to begin investing in equities now."
But is Tata SIP the best systematic investment option for the current market?
What is Tata SIP Fund?
Tata SIP Fund is a refined version of systematic transfer plan (STP) offered by mutual funds. Investment expert Sandeep Shanbhag explains, "In an STP, a lump sum is invested in a liquid fund and every month a fixed amount is transferred from the liquid fund to an equity fund. For every transfer, there is a capital gains tax liability. When the transferred amount is invested into the equity fund, an entry load needs to be paid. An investment in Tata SIP Fund works similarly, only the investor would not have to pay tax every time the units are redeemed neither he will he have to pay the entry load."
How is Tata SIP different from a regular SIP?
Regular SIP plans normally offer investors the facility of post-dated cheques or auto debit at time of investment.
The Tata SIP Fund on the contrary, invites a lump sum subscription amount during the NFO, which will initially be invested in debt and money market instruments.
These funds will then be systematically transferred to equities over the close-ended period of 36 months. At the end of the 36 months, investors in the fund have the option of switching to Tata Pure Equity Fund at no entry load.
While these are the plus points of Tata SIP Fund's structure, experts believe the flip side cannot be ignored.
Compromise on flexibility to choose your fund:
Shanbhag feels that, "By investing in Tata SIP Fund, the investor loses the flexibility of choosing the equity fund that he can invest in. Also, if the chosen schemes don't do well, he loses the flexibility to switch to other schemes."
Advisor Hemant Rustagi adds, "Investors who have the benefit of good advice can invest in a similar manner through a Systematic Transfer Plan (STP) into equity funds with a proven track record from different mutual funds with different investment philosophies, styles and universe."
But Ved Prakash Chaturvedi, CEO, Tata Mutual Fund believes, "Tata SIP Fund is a hassle free and simple way of investing in the STP idea. Also, STP would attract various costs which is not the case with Tata SIP Fund."
Performance track record of existing Tata schemes:
Shanbhag feels that as a fund house in general, the performance of Tata MF's equity schemes hasn't been extraordinary.
However, Chaturvedi opposes this view as he says, "It is incorrect to say that Tata Mutual Fund schemes have not shown extra ordinary performance. The Tata Pure Equity Fund, Tata Select Equity Fund, Tata Equity Opportunities Fund, Tata Life Science and Technology Fund, Tata Balanced Fund and Tata Growth Fund have all shown commendable performance over the long term.
Tata Infrastructure Fund has been one of the top performers in the recent past. All the funds mentioned have beaten their benchmark in most of the measured periods. Various other schemes are performing in line with their risk return positioning. Going by our past record there is no reason to believe why the Tata SIP Fund would not be able to beat the benchmark over a period of time."
Small time investors may not benefit:
"This fund can be considered only by those investors who have a lump sum to invest. Those investors who take the SIP route to build capital over the years by investing small amounts (as low as Rs.500 in some cases) cannot benefit from this", says Rustagi.
Chaturvedi counters as he says, "Although Rs 500 is the minimum ticket size for an SIP scheme, the average ticket size as such is approximately Rs 2000 as per industry estimates. Hence a minimum of Rs 5000 in this scenario is not wayward, for a fund, which gives the investor additional benefits as compared to either a normal STP or SIP."
"Secondly this fund is also targeted at individuals who have booked profits in the recent past and wish to stay invested in the capital markets. Another set of people being targeted are those who want to enter the capital markets for the first time but are skeptical to do so at these levels", he adds.
Conclusion:
All said, experts believe that the scheme is ideal for those investors who want to do away with the hassles of writing multiple cheques, calculating and paying tax each month on withdrawals and keeping track of multiple account statements. So all in all, Tata SIP Fund makes the investing process simple and hassle free, however, if the performance of the equity portion is not up to the mark, the investor would have paid dearly for such convenience.
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