For Lumpsum Investments In Mutual Funds Choose STP Route

Someone has wisely said that one can not and should not time the market. This is why investing through Systematic Investment Plan (SIP’s) works. Taking the SIP route takes away the risk to the larger extent, especially in long term. However, there is another option which suits to those investors who wish to invest lumpsum money into mutual funds i.e. Systematic Transfer Plan (STP).

- Amit Chauhan

What is Systematic Transfer Plan?

By opting Systematic Transfer Plan, an investor is able to invest lump sum amount into mutual fund with the option of transferring the fixed or flexible amount into a different scheme. It can also be termed as the extension route of SIP as like in the case of SIPs you can invest in mutual funds in a small amount that is as low as Rs. 500. In the case of STP, you can typically park a lump sum amount in any Debt mutual fund scheme, from which fixed or variable sum gets transferred into an equity oriented mutual scheme at a periodic interval. It means that the units equivalent to the transferred amount will be sold from primary debt mutual fund schemes and the same amount will be used to buy units of the chosen equity mutual fund scheme. One can use the STP into several schemes at the same time.

Why is it useful?