Understanding Triggers in MF

Trigger is an event on the occurrence of which the fund will automatically
redeem/switch the units on behalf of investors.
Once you invest in a fund, there are two basic transactions that you can execute;
redeem your units or transfer them to another fund. When these transactions are automated
based on an event taking place, it is referred to as a Trigger.
So once you decide on the Trigger, the execution of the transaction is automated.
Who sets the Trigger? The investor.
Who executes the Trigger? The fund house.
When is it executed? On the day the Trigger point has been reached, which is mostly
value specified.
Let’s say you bought 100 units of Fund A when the Net Asset Value (NAV) was Rs 12.
You want to redeem all your units when the NAV touches Rs 15 (Trigger point). You
can keep track of your investment on a daily basis and send a redemption request
when that happens, or you set a Trigger. If you opt for the latter, the fund house will take over and track your investment and sell the units when the NAV touches Rs 15.
It sounds like a winner. But this concept yet has to gain momentum.
Trigger-based plans enable investors to shift conveniently between
debt and equity. The investor determines the Trigger and the portfolio
gets rebalanced accordingly. Simple, specially if he wants to just sell his
units or shift them to another scheme from the same fund house. The
hindrance is if the investor wants to shift his investment to a scheme
from a different Asset Management Company (AMC). So he may exit
from an equity scheme from Fund House A but not want to put his
money in a debt scheme in Fund House A, but rather, in Fund House B.
The Trigger will just enable him to sell his units. He will have to make
the effort to buy the units of the scheme from the other fund house.

When It Works For You...

Automated: Investors need not track their investment
or the market. It is conveniently taken care of.

Discipline: There is no emotion involved, which often
works against the investor. If you get carried away
with the stock market, a Trigger will help you stay disciplined.

Goal Based Investing: It helps you to stick to your
goals of capital appreciation.

Loss Limitation: Since limits can be assigned to
upside and downside movement of investment value,
a market slide will not take away your gains.
When it works against you...
Disturbed Asset allocation: If gains are regularly booked in equity
investments as a bull run gains momentum, the portfolio may get
skewed towards debt and restrict gains from a market rally.

Revisiting The Trigger: One cannot be totally disconnected
from their investments. A lot of these Triggers
cease to exist after being executed the first time.
Investors may need to apply for another Trigger again.
Alternatively, if the Trigger is not executed within a
certain time, it may expire and would need to be reactivated.

Aimless Profit Booking: Profits may end up getting
booked even if there is no goal in sight. Hence the
money could remain un-utilised for years to come.

Load & Taxes: Redemptions could attract taxes. For
instance, redemption in equity funds within one year of
investment will attract capital gains tax. Not to mention
exit loads if the tenure of the investment is brief.