Understanding Booster Systematic Transfer Plan

What is it

Booster STP is a facility provided by ICICI Prudential Mutual Fund, which allows unit holders to transfer variable amounts from a designated open-ended scheme (source scheme) to another designated open-ended scheme (target scheme) at defined intervals.

It offers investors the flexibility to allocate their investments based on their financial goals and market conditions. Booster STP can vary instalment amount from 0.1X to 5X of base instalment amount based on Equity Valuation Index (EVI). Simply put, this is a smarter way to invest in equities.

For eg, on a base instalment of Rs. 10,000, the investment amount can vary from Rs. 1,000 (0.1X multiplier) to Rs. 50,000 (5X multiplier). The multiplier is decided based on the EVI, which is a proprietary model of ICICI Prudential AMC. The EVI is derived by assigning equal weights to Price to Earnings (PE), Price to book (PB), G-Sec*PE and Market Cap to Gross Domestic Product (GDP).

How does it work

With Booster STP, investors have the freedom to transfer funds from the source scheme to the target scheme periodically. The transfer can be customised to suit their individual investment requirements. This transfer can be made in variable amounts, which gives investors the advantage of allocating more funds during market downturns and fewer funds during market upswings.

Essentially, with Booster STP you will invest smaller instalments when valuations are higher and invest larger instalments when valuations are lower. So, there are dynamic instalments with dynamic tenure. In effect, Booster STP allows you to combine rupee cost averaging and value averaging.

Why go for it

Booster STP offers several advantages over traditional investment approaches. By leveraging market volatility, investors have the opportunity to maximise their returns. During market downturns, when prices are lower, investors can transfer a larger amount, allowing them to accumulate more units of the target scheme. As markets recover, the value of these units can potentially grow substantially.

Key benefits

Rupee Cost Averaging: Booster STP employs the concept of rupee cost averaging, which reduces the impact of market volatility. By investing a fixed amount at regular intervals, investors can buy more units when prices are low and fewer units when prices are high, thereby potentially reducing the average cost of investment.

Flexibility and Customization: Booster STP allows investors to choose the transfer frequency and amount based on their financial goals and risk appetite. This flexibility enables them to align their investments with market conditions and their individual investment strategies.

Capital Appreciation: By strategically transferring funds during market downturns, investors have the potential to accumulate more units at lower prices. As the market recovers, the value of these units can appreciate, leading to capital gains.

How different is it from normal STP?

While both Booster STP and normal STP involve periodic transfers between mutual fund schemes, Booster STP offers the advantage of variable amount transfers. In a normal STP, fixed amounts are transferred at regular intervals. In contrast, Booster STP allows investors to transfer variable amounts, giving them the flexibility to take advantage of market volatility.

With Booster STP, one can optimise their returns by investing as per market valuation and sizing at appropriate time. It helps you transfer variable amounts at variable tenure according to the market valuations. By doing so, the feature not only helps investments to grow but also limits volatility over Normal STP. Ideal monthly base STP instalment amount should be ~8% of the total amount to be transferred. Recommended investment horizon should be a minimum 5 years.

To conclude, with the advantages of rupee cost averaging, flexibility, and potential capital appreciation, Booster STP offers a compelling investment option for mutual fund investors. By understanding its intricacies and tailoring it to their investment goals, investors can make informed decisions and enhance their wealth creation journey.