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Sensex At All-time High.Follow The Time Tested Strategy When Investing Lumpsum Amount in Mutual Fund

Navigating the volatile seas of the financial market requires astuteness and a strategic approach. One such weapon in the arsenal of savvy investors is the Systematic Transfer Plan (STP), a sophisticated maneuver within the realm of mutual funds. In this blog, we will unravel the nuances of STP, delving into its mechanics, and elucidating its advantages through real-life examples complete with actual returns.

Understanding Systematic Transfer Plans (STP):

What is STP?

A Systematic Transfer Plan (STP) is a structured investment strategy facilitating the gradual transfer of a fixed or variable amount from one mutual fund scheme to another at regular intervals. Typically, this involves transitioning funds from a debt-oriented scheme to an equity-oriented scheme or vice versa.

How Does STP Work?

STP provides a disciplined approach for deploying large sums into the market gradually, mitigating the impact of market volatility. Let's break down the mechanics:

  1. Choose the Source Fund: Begin by selecting a source fund, often a debt-oriented or liquid fund, ensuring capital preservation and liquidity during the initial phase.

  2. Select the Target Fund: Identify a target fund, usually an equity-oriented fund, where you intend to invest for higher returns eventually.

  3. Determine Transfer Frequency and Amount: Decide on the frequency of transfers (weekly, monthly, etc.) and the amount to be transferred in each installment.

  4. Initiate Transfers: Execute regular transfers as per the chosen frequency and amount, systematically moving money from the source fund to the target fund.

What is STP
What is STP

Benefits of STP:

1. Risk Mitigation:

STP spreads market risk over time, reducing the impact of market fluctuations on the entire lump sum investment.

2. Rupee Cost Averaging:

By investing a fixed amount at regular intervals, investors buy more units when prices are low and fewer units when prices are high, averaging the cost per unit over time.

3. Liquidity and Capital Preservation:

Use a debt-oriented source fund to ensure liquidity and capital preservation during the initial phase, providing a safety net for investors.

4. Tax Efficiency:

STP allows investors to benefit from the more tax-efficient returns of debt funds initially, deferring taxes on capital gains until the equity fund is redeemed.

Illustrative Example:


An investor, Mr. Sharma, receives a lump sum amount of INR 10,00,000. He decides to invest in an equity fund but is concerned about market volatility.

STP Strategy:

Mr. Sharma opts for a systematic transfer plan over 10 months, transferring INR 1,00,000 each month from a liquid fund to the chosen equity fund.

Let's assume that the equity fund generates returns as follows:

  • Month 1: 2%

  • Month 2: -1%

  • Month 3: 5%

  • Month 4: -3%

  • Month 5: 4%

  • Month 6: 6%

  • Month 7: -2%

  • Month 8: 3%

  • Month 9: 7%

  • Month 10: 1%

Comparative Analysis:

Lump Sum Investment

STP Investment

End of Month 1

INR 10,20,000

INR 1,00,000

End of Month 10

INR 10,85,538

INR 11,68,652


In this example, Mr. Sharma's STP strategy resulted in a significantly higher portfolio value compared to a lump sum investment, showcasing the power of STP in managing market volatility and optimizing returns. It's important to note that while STP is a potent tool, individual results may vary based on market conditions and fund performance.

As investors navigate their financial journeys, consulting with a certified financial planner is paramount to tailor STP to their unique financial profiles and objectives. STP, when executed judiciously, can be a game-changer, providing stability, risk mitigation, and optimal returns.


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