I want to invest Rs 10 lakh to start an STP into HDFC Top 200. I plan to invest the lump sum in HDFC Prudence or HDFC MIP Long-term. I need the money after five years for my daughter's education. Is this a good strategy to adopt?
— Puspendu Ghosh
The strategy of investing a lump sum in a balanced fund or a Monthly Income Plan (MIP) for systematic transfer is not a good idea. HDFC Prudence normally invests 70 per cent of its assets in equity. HDFC MIP Long-term can go up to 25 per cent in equity. Ideally, investment in equity funds should be staggered to avoid a mistimed market exposure. These hybrid funds are not free from market risk which should be avoided for the Systematic Transfer Plan (STP). You just might face a capital loss with your lump sum investment while you wait for this money to move into an equity fund. The other problem is the exit load of typically 1 per cent for redemption from these funds within one year, which will be levied for the STP transfers.
Given you investment time frame, we would recommend investing in a short-term debt like HDFC Cash Mgmt Treasury Advantage or the HDFC Floating Rate Income Short-term Retail Plan and start a STP for 8-12 months in HDFC Balanced Fund.