Thursday, July 30, 2009


HDFC FlexIndex Plan - Helps you overcome indecision of Investing

Srikanth Shankar Matrubai

HDFC Flexindex Plan is an unique Investment Idea which should serve Conservative and First Time Investors as a good base to enter Equities without the accompanying volatility.

HDFC Mutual Fund's "HDFC Flexindex Plan" allows you to manage your money between their funds based on how the Sensex is doing. The idea is that you associate various types of transactions with various ‘trigger levels’ of the Sensex and when the triggers are hit then those transactions are carried out. These triggers would then switch your money from debt funds to equity funds or back.

Suppose you invest Rs.50000 in a HDFC Liquid Fund and then you are required to give your Entry Triggers to switch from the Liquid Fund to a predetermined Equity Fund.

You can give 4 options adding upto 100% of your investment. The Default Option is 25% at each Entry level.
Suppose Index level is say, 15000 and you give Entry Level Trigger at 25% on every fall of 500 points, Then your 50000 will be split into 25% and invested at your preferred Equity Fund at every 500 point fall.
Yes, many would argue that this goes against the Basic Concept of Mutual Fund itself wherein instead of the Fund Manager, it is the Investor who decides, as to When the Fund gets invested in Equities!. However, what should be noted that this will attract those kind of investors who are attracted towards Equities but are apprehensive about investing at these levels. So, this concept will allow an Investor the Flexibility to invest at pre-determined Sensex levels, different percentage of amount. So, timinig is left to the Investor, while Stock Selection would continue to be the work of the Fund Manager.

A Switch Plan like the "HDFC Flexindex Plan" offers the opportunity to steadily increase your exposure to equities at Different Price levels.
I would advise investors that though the "HDFC Flexindex Plan" looks and sounds good, it would be more prudent idea to invest in a Debt Fund and go for a Systematic Transfer Plan which would "time" the Market in a Efficient and Tested Way.
Also, do remember, that HDFC Flexible Plan is not a substitute to SIPs. A SIP always works out better in the long run.

Srikanth Shankar Matrubai

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