Systematic Transfer Plan or STP is a plan that helps investor transfer a fixed sum of money from a specific type of fund scheme to another that is within the same house of funds. The primary objective of STP is to provide a little more earning to the investors on the lump sum amount during its deployment equity-related schemes. On the basis of the lump sum amount, the time horizon of STP is decided. So the larger is the sum the longer is the time horizon for STP.

The reason why STPs are better than lump sum investment

STP is the best possible route for investors who intend to put their money in lump sum fund schemes. STP will offer investors the advantage of comparative risk investment even in an expensive market.

The following highlights why STPs are better than lump sum investment when the market is expensive:

• Volatile Market: Investing a huge amount in equity-related funds that too at a go can be very risky in a volatile market. Investors can lose a major portion of their invested sum in the immediate short-term; investors can minimize the risk of eroding their money in the short-term and can earn decent returns in the long-term through timely STP investment.
• Good Returns: People investment their money with the hope of earning good returns. Through STP, investors can earn better returns on their investment transfers than when compared to what would otherwise get for keeping their money in a savings account.
• Flexibility: STP schemes are flexible in nature; investors can opt for changes as per the mood of the market and make their plan faster, slower or stop it at any given time. Investors should be careful while making such changes in their plan and always consider the value of the market, scrutinise their financial need and consider an expert’s advice before going through any of it.
• Cost Averaging: Investors can enjoy the benefit of cost averaging through STP and make the most of the different moods, flavour and opportunities of the market. It facilitates the investors to consider the situation of the expensive market and presents suitable opportunities for them to take advantage of. The highs and the lows of the market are treated in a similar fashion like that in SIP and it protects investors against stock market risk.
• Rebalancing: Rebalancing the investment portfolio on a regular basis is crucial for increasing its value and earning capacity; STP gives investors the opportunity to rebalance their portfolio every time they switch from one type of debt to equity-related fund when the investment in debt increases or equity to debt-related fund when investment in equity-related plans increases.

If you want to revise and rebalance your portfolio in an expensive market, opt for the STP route or the same house funds and enjoy steady and safe returns on them. Consult our fund managers and financial advisers to know more about the tricks of using STP in an expensive market and why it’s better than lump sum investments.