mutual fund The number of investors investing through SIP in India is in lakhs. However, very few of them know about STP (Systematic Transfer Plan). We all know that through SIP one invests in a mutual fund scheme on a fixed date at regular intervals (often once a month). Whereas in STP, investors invest a lump sum amount in a mutual fund scheme (usually a debt fund) and then transfer it to equity schemes at regular intervals. In other words, with the help of STP, investors can transfer money from a low-risk scheme to a high-risk scheme, for example, from a debt fund to an equity fund. STP helps investors manage risk and get better returns.
Major differences between the two
Under SIP, money is deposited directly from the investor’s bank account into a mutual fund, thereby promoting disciplined investing without the need for a large initial amount. In contrast, STP requires an initial lump sum investment in a debt fund from which the money is regularly transferred to an equity fund, allowing strategic allocation adjustments over time.
Both have their own benefits
SIPs offer the benefit of rupee cost averaging, thereby mitigating the impact of market fluctuations by buying more units when prices are low and fewer units when prices are high. Additionally, SIPs are flexible, allowing investors to start with the lowest amount and adjust the contribution as per their financial situation.
STP helps in reducing market risks. Enhances returns by allocating assets based on stock market performance. STPs are particularly beneficial for investors who have sufficient wealth and want to gradually invest funds in equities, thereby reducing the risk of market fluctuations associated with lump sum investments. STP protects the investor from market fluctuations. With STP the investor gets the benefit of rupee cost averaging. With the help of STP, the investor does not have to worry about market fluctuations.
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