Question 1

What is an STP?

Accepted Answer

A Systematic Transfer Plan (STP) lets you invest a lump sum in a liquid or debt mutual fund and then automatically move a fixed amount into an equity fund every month. For example, you could park ₹1,20,000 in a liquid fund and transfer ₹10,000 per month into an equity fund over 12 months, letting you deploy cash gradually rather than all at once.

Question 2

How does an STP reduce risk compared to a lump sum investment?

Accepted Answer

When you invest a lump sum directly into equity, all your money is exposed to market prices on a single day. With an STP, you spread the purchases across several months, so you buy fewer units when prices are high and more when prices fall. This is similar to rupee cost averaging in a SIP and smooths out the impact of short-term market swings.

Question 3

How do I choose the right source and target funds?

Accepted Answer

The source fund is usually a liquid or ultra-short-duration debt fund that keeps your lump sum safe and earning a modest return (around 5 to 7% per year) while transfers go out. The target fund is typically an equity fund where you want long-term growth. Choose a target fund based on your risk appetite, just as you would for a regular SIP.

Question 4

When should I use an STP instead of a direct SIP?

Accepted Answer

Use an STP when you have a lump sum available right now but are uncomfortable investing it all in equity at once. For instance, a bonus, a matured FD, or a gratuity payout is a good candidate. If you are investing from your regular monthly salary, a standard SIP is simpler and works just as well since you never have a large idle lump sum to deploy.

STP Calculator

Frequently asked questions

STP Calculator

Frequently asked questions