Don't sit on cash, invest in equity via STP

Systematic transfer plans protect against downside risk

- SAIKAT NEOGI

WITH THE MARKETS volatile, investors may hesitate to invest lump sum in equities. Systematic transfer plans (STPs) provide an effective way to navigate volatility while ensuring market participation over time.

Instead of keeping money in a low-yield savings account, STPs allow investors to earn additional returns while waiting. It gradually transfers money from a low-risk liquid or ultra-short-term debt fund to an equity fund over six to 18 months, ensuring a smoother entry into the market. The strategy is most effective during volatile markets as it helps in averaging the cost of investment.

Experts say in the current market condition, it is advisable for investors to stagger investments into the equity markets through STPs over the next six to nine months. They should park money in low-risk liquid or arbitrage funds and can transfer a fixed amount each month. This will help them to take advantage of any interim volatility and average their cost of investment.