SIP vs STP
STP (Systematic Transfer Plan) involves investing a lump sum in one mutual fund (usually debt/liquid) and systematically transferring a fixed amount to another ...
SIP vs STP
STP (Systematic Transfer Plan) involves investing a lump sum in one mutual fund (usually debt/liquid) and systematically transferring a fixed amount to another fund (usually equity) at regular intervals. While SIP invests fresh money from your bank, STP moves money between existing fund investments.
STP is used when you have a lump sum but want the benefits of staggered investing. Instead of investing ₹12 Lakhs directly in equity, you park it in a liquid fund and transfer ₹1 Lakh monthly to equity over 12 months. The money in liquid fund earns 5-7% while waiting, and you get Rupee Cost Averaging for equity investment.
Fresh money flows from your bank account into a mutual fund each month
Existing money moves from one mutual fund (debt) to another (equity)
Parked money in liquid fund earns 5-7% while awaiting transfer
Both source and target funds must belong to the same AMC
Dinesh's STP Strategy for Bonus Amount
Dinesh receives ₹15 Lakhs as bonus and uses STP to systematically move it from a liquid fund to equity over 12 months. Here is how his money flows month by month.
| Month | Liquid Fund Balance | STP Transfer | Equity Fund Invested |
|---|---|---|---|
| Start | ₹15,00,000 | — | ₹0 |
| Month 1 | ₹13,83,125 | ₹1,25,000 | ₹1,25,000 |
| Month 3 | ₹11,47,637 | ₹1,25,000 | ₹3,75,000 |
| Month 6 | ₹8,25,894 | ₹1,25,000 | ₹7,50,000 |
| Month 9 | ₹5,01,331 | ₹1,25,000 | ₹11,25,000 |
| Month 12 | ₹1,73,909 | ₹1,25,000 | ₹15,00,000 |
| Total Benefit | ₹48,909 earned in liquid fund | RCA benefit in equity | ₹15,48,909 effective investment |
What Makes This Important
Step-by-Step Calculation
Dinesh receives ₹15,00,000 bonus. Compares lump sum vs STP: Option A — Direct Lump Sum in Equity: Invested: ₹15,00,000 on Day 1 Risk: Entire amount at single market level Liquid fund earnings: ₹0 Option B — STP (Liquid → Equity over 12 months): Parked in liquid fund at 6.5% p.a. Monthly STP: ₹1,25,000 to equity fund Liquid fund earnings during the year: ~₹48,909 Effective total deployed: ₹15,48,909 Extra money earned by STP approach: ₹48,909 Plus: RCA benefit reduces average purchase cost in volatile markets Minus: If market rises steadily, lump sum would outperform
Frequently Asked Questions
Use STP when you have a lump sum to invest (bonus, inheritance, property sale proceeds). Use SIP for regular monthly income-based investing. They serve different situations but provide similar benefits.
🧠 Quick Quiz
1 questions to check your understanding