What is Variable Transfer Plan (VTP)?
Variable Transfer Plan (VTP) is a facility wherein unit holder(s) of designated scheme(s) of can opt to transfer variable amount(s) linked to value of investments under VTP on the date of transfer at predetermined intervals. It will help investors to buy more units when the market falls and hence reduces average cost of purchase. It is a superior product than SIP/STP.
How does VTP work?
The formula which is commonly used for computation of VTP amount is
[(No. of Installment including current installment X Fixed Amount of VTP as mentioned in VTP Form) - Market Value of Target scheme]
Illustration
• Source Scheme: Mirae Asset Cash Management
• Fund Target Scheme: Mirae Asset India Opportunities Fund
• Option: Monthly
• VTP Amount: ₹ 5000
Suppose an investor has already transferred 3 installments up to date September 15, 2014. Total units allotted to the date of last installment i.e. September 15, 2014 is assumed as 1400. The NAV of Mirae Asset India Opportunities Fund - Growth Option on October 2014 is assumed as ₹ 9.50 per unit.
The market value of investment on the date of transfer is 13,300 (1400 X 9.50). The next installment as per the VTP= (4 X 5000) - 13,300 = 6,700 OR Fixed Amount of VTP mentioned in VTP form = ₹ 5,000. Since ₹ 6,700 is higher than ₹ 5,000, so ₹ 6,700 will be transferred.
Benefits of VTP
• VTP is similar to SIP/STP in a rising market - In a rising market, as per VTP formulae the installment
amount will be lower than the fixed investment amount, hence the fixed amount will be invested
(hence SIP and VTP investment will be similar)
• VTP is better than SIP/STP in a falling / sideways market - In a falling market VTP allots higher amount
per month than SIP, hence reduces the average cost of purchase and will benefit investors when
market rises.
Watch out this space for more, next we will cover “Trigger Investment Plans” in our next article
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.