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Recently, some funds have been introducing a trigger option in their schemes. How does it help? Should I invest in a fund, which has a trigger option?

Recently, some funds have been introducing a trigger option in their schemes. Should I invest in a fund, which has a trigger option?
Pratap Joshi, via e-mail


If you don't have enough time to monitor your portfolio, then a trigger option is what you need. This option is an easy way to determine your exit from a fund well in advance. Triggers are of three types: time-based, event-based and value-based. The time-based trigger will result in redemption at a pre-specified date. An event-based trigger will come into force when a particular event has taken place, say, the Sensex crosses the 3,500 mark. The most useful trigger may be the value-based option. Here, when a fixed return has been achieved, units get redeemed automatically. Thus, a target of 20 per cent can be used as a trigger to exit an equity fund.

If you are not monitoring your portfolio regularly, a trigger option could be a useful tool to cash out your gains once the target is achieved. In the recent past, many fund houses have introduced this option for their equity schemes. The first off the block was IL&FS Mutual Fund, which introduced this facility in its Growth & Value Fund. Currently, apart from IL&FS, UTI and IDBI Principal Mutual Fund also offer this option.

But don't invest in a fund just because it has a trigger option. At the end of the day what matters is the return on your investment. A poorly performing fund will not allow your trigger to materialize. So, make sure that the fund you plan to invest in has, apart from a trigger option, a good performance track record too. In addition, you should also ensure that the fund's investment objective is aligned with your financial goals. This will help in avoiding any unpleasant surprises.

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