What is trigger facility in a mutual fund?

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Most of the mutual funds come with a trigger facility option that enables investors to book profit as and when a pre-defined event in respect of time and value is attained. In the case when mutual fund investor applies for the facility, the asset management company or AMC redeems and/or transfers mutual fund units in the scheme to another scheme automatically on occurrence of the pre-defined event.

On attainment of the trigger point (in terms of either time or value), the trigger activates a transaction. As an exact value may or may not be reached, trigger sets in, when the value reaches either the pre-specified value or a higher value.

Hence with this facility in hand, investors are able to better track their mutual fund investments and realize individual investment goals.

Different types of triggers

1. NAV trigger: Under such a facility, for exiting the investment, investor can specify change in NAV value in % terms. The minimum % change in NAV is 5% and in multiples of 1% thereof.

2. Index trigger: Index-based trigger sets in when SENSEX hits a specified level or rises by some pre-defined points. The index trigger has to be selected in multiples of 100 only and an investor can choose the index mark either higher or lower than the current levels.

3. Capital gains trigger: Such a trigger comes into play when capital gains of some pre-defined value in the mutual fund scheme are realized.

4. Value-based trigger: The trigger gets activated as and when the investment value of the scheme reaches the pre-defined mark. Upon activation, mutual fund units are either redeemed or transferred into another scheme as specified by the investor.

5. Date trigger: Such a trigger sets in on a particular date i.e. pre-specified by the investor.

6. Downside trigger : Such a trigger based on the concept of stop loss allows an investor to minimize loss from an investment.

How can a MF investor apply for the trigger facility?

An application in writing has to be furnished to the mutual fund house for enrolling in the facility. The application in this respect should include the folio number, scheme name and transaction details among others upon the realization of which the trigger has to be activated. New or additional terms in respect of the trigger facility can also be specified during the course of investment in the scheme. Further, at any point, an investor can exit from the facility by making a request for cancellation.


Read more about: mutual funds, nav, capital gains
Story first published: Thursday, December 12, 2013, 12:55 [IST]
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