what is STP ?

 

🧠 What is STP?

STP (Systematic Transfer Plan) is a tool that automatically shifts money from one mutual fund scheme to another at regular intervals.

Usually:

• From a low-risk fund (like Liquid or Ultra Short-Term Fund)

• To a higher-risk fund (like Equity Mutual Fund)

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💡 Why combine SIP with STP?

Because sometimes, instead of doing SIP directly into equity, you:

1. Invest a lump sum in a Liquid Fund

2. Then set up an STP — to gradually transfer fixed amounts into your Equity Mutual Fund

This combination is like SIP but from your own liquid pool.

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✅ How it works (Step-by-step)

Example:

• You have ₹5,00,000 to invest

• You don’t want to put it all into equity at once (due to market volatility)

• So, you do this:

1. Invest ₹5,00,000 in a Liquid Fund

2. Start an STP of ₹20,000/month for 25 months

3. This money is moved automatically every month to an Equity Mutual Fund

Effectively:
✔️ You’re averaging the equity purchase like a SIP
✔️ But you’re earning returns (~6%) on the money waiting in the Liquid Fund
✔️ You reduce market-timing risk

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🔍 STP vs SIP

SIP	STP
Invests directly from bank	Transfers from one fund to another
Good for salaried investors	Good for lump sum investors
Monthly debit from savings account	Monthly debit from liquid fund
Less control over idle money	Idle money earns returns in Liquid Fund

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🔑 When to use SIP vs STP?

Situation	Use
You invest monthly from salary	Use SIP
You have lump sum (bonus, sale, inheritance)	Use STP