Product Review: Can ABSL’s Turbo STP improve returns for investors?

The idea of a systematic transfer plan (STP) in a mutual fund is usually to move your money from debt to equity schemes depending on the direction of the markets. So, when markets correct swiftly, it may be a good time to move some funds to be transferred to equities to participate in any ensuing rally. There is thus an element of timing in this process. In this light, Aditya Birla Sun Life (ABSL) mutual fund has come out with a new ‘turbo’ STP. Here is what you must know about it.

What is ABSL Turbo STP?

ABSL Turbo STP is a facility wherein the variable amount is transferred from the source debt scheme to target scheme at weekly, monthly, or quarterly frequencies. Here, you will be required to select a base instalment amount that will be ‘multiplied’ by the EVM (Equity Valuation Multiplier) score to arrive at an amount which will be transferred to the target MF scheme. The EVM score is the result of ABSL’s formula-based in-house model, which considers combination of fundamental and technical parameters. Fundamental parameters consist of valuation ratios such as P/E, P/B and Yield Gap (ratio of dividend yield of an equity to the yield of a long-term government bond) based on S&P BSE 100 index, trend ratios such as Linear Momentum, Momentum Reversal and Copper to Gold Ratio along with volatility ratios such as India VIX and US VIX. Ultimately, the investment amount will be in the range of 0.2-5 times the base instalment amount depending on the EVM score.

Let’s take an example here. Raj has started ABSL Turbo STP, wherein he put a lump-sum amount of ₹1 lakh in ABSL Savings Fund while the target scheme is ABSL Flexi Cap Fund. The base instalment amount kept here is ₹5,000. Whenever the EVM is less than 0.72, the amount to be transferred will be 0.2 times the base amount — ₹1000, while the same will be one time and five times — ₹5,000 and ₹25,000 when EVM is 0.9 and more, and 1.4 respectively. Here at every different EVM score, the multiplier will change and EVM score will be high when markets are low, and vice versa when markets seem high as per the model. The minimum base instalment amount for Turbo STP is ₹1,000.

How it compares with others

Apart from ABSL AMC, a host of fund houses provide investors with such flexi STP facility, wherein varying amounts can be transferred for each period. However, the only facility which is somewhat similar to ABSL Turbo STP in terms of determination of investment amount is the Kotak Smart STP.

Kotak Smart STP and ABSL Turbo STP are similar as both use fundamental and technical parameters to arrive at a multiplier. While Turbo STP uses EVM as explained earlier, Kotak Smart STP uses Net Equity Allocation of their scheme, Kotak Balanced Advantage Fund (BAF), for determining multiplier. The difference here is that the range of the multiplier for Kotak facility is 0.5-2x, which an investor can change as per his/her own preference, while the same is not the case with ABSL facility as the range here is 0.2-5x and investors can’t change it based on their own preference. Currently, both the facilities are available on an offline basis only.

Know the process

The strategy is a risky one and goes against the very concept of rupee-cost averaging

Last Words

The Turbo STP facility ultimately aims to provide investors with an opportunity to earn extra returns compared to those from a traditional STP by taking market valuation and other parameters into account. The fund house has done the back-testing of the model on their Low Duration (source scheme) and Flexi Cap (target scheme) funds. Here, considering an investment of ₹12 lakh with STP for 12 months from January 2020 to January 2021 has resulted in the investment rising to ₹19,48,891 and ₹22,29,536 as on April-end 2022 under normal STP and Turbo STP respectively. The CAGR in these cases are 20 per cent and 27 per cent, respectively.

But given that the data is for such a short time-frame, which saw a sharp drop in March 2020 and a one-way upward move subsequently for the next year or so, and even the numbers might have further changed post April 2022, it cannot be taken for any reasonable futuristic return projection.

The strategy is a risky one and it actually goes against the very concept of rupee-cost averaging, where one doesn’t need to time the market. More time and data needs to become available to convincingly say that this mode of investing is suitable for regular retail investors with moderate risk-appetite.

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