Topic 6 of 9~5 min read

SIP vs STP

Definition

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.

In Simple Words

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.

Real-Life Scenario

Dinesh receives ₹15 Lakhs as annual bonus. Instead of investing all at once in equity: Step 1: Invest entire ₹15L in a liquid fund (earning ~6.5% p.a.) Step 2: Set up STP of ₹1.25L/month from liquid to flexi-cap equity fund Duration: 12 months Benefit: The ₹15L earns approximately ₹48,750 in the liquid fund over the year while also getting systematically invested in equity with RCA benefit.

Key Points to Remember

STP moves money between funds; SIP invests fresh money from bank

STP is ideal for lump sum amounts you want to invest gradually

Source fund (usually liquid/debt) earns returns while waiting

Combines lump sum parking with systematic equity investing

Tax implication: Each STP transfer is a redemption + purchase

STP provides RCA benefit similar to SIP

Duration of STP typically 6-12 months

STP is not available across AMCs — both funds must be from same AMC

Frequently Asked Questions

Test Your Knowledge

1 questions to check your understanding

Question 1 of 1Score: 0/0

In an STP, what typically serves as the source fund?

Summary Notes

STP is the lump sum equivalent of SIP

Park lump sum in liquid fund, transfer systematically to equity

Both source and target funds must be from the same AMC

Each transfer has tax implications — plan accordingly