Systematic Transfer Plan

In an uncertain market, retail investors always have the confusion of not knowing when to buy especially if they are planning to invest a large sum of money. This where the SIP comes in and you can read more about SIP at

1. Systematic Investment Plan - Part I

2. Systematic Investment Plan - Part I


The SIP mode is the best route to invest with if there are regular cash flows in the future and you can match these cash flows with the intended investment into mutual funds. But if someone had a huge corpus and plans to invest in equities and at the same time then they are worried about the prevailing uncertainty in the market? Even in those circumstances, the systematic investment route remains the best vehicle to invest. The gains that one could get by investing an SIP can be enhanced by opting for a systematic transfer plan (STP) along with the SIP.

STP allows one to make periodic transfers from one mutual fund into another. In an SIP, an investor typically parks the money in a bank savings account and a certain amount is transferred at a regular interval from the savings account to the fund house for buying into a specified equity fund. In the case of an STP, the lumpsum is invested in a liquid or a floating short-term plan and is transferred at regular interval to a specified equity fund. For example, one has Rs 1,20,000 to invest in equities, he can put the entire amount in a liquid plan and go for a monthly SIP (assuming that period of investment is 1 year) of Rs 10,000 in an equity plan through a systematic transfer. However, the primary limitation of this investment process is its inability to invest in different mutual fund houses. So, if you have an equity fund to invest through the SIP mode, you would have to necessarily choose the liquid fund of the same fund house. But with little difference in returns among different liquid funds and its almost risk-free status, STP is still a better bet than parking that lump sum in a bank deposit.

While an investor earns only around 3.5% pa interest on the amount parked in the savings account, a liquid fund gives a higher return of 6-8% pa on the corpus with the same level of liquidity. As these funds invest in safe and liquid debt instruments, the level of risk remains very low and also these liquid funds typically do not have any entry or exit load if one remains invested for a week.

So, maximize your returns by having a combination of STP and SIP.