STP (Systematic Transfer Plan)
In simple words, STP means transferring money from one mutual fund to another. STP is a smart strategy of investment over a specific term to reduced risks and balanced returns. Here, an AMC (Asset Management Company) permits you to put a lump sum in one fund, and transfer a fixed amount to another scheme regularly.
STP is a useful tool in mutual funds to average your investment over a specific period, which depends on three factors:
- Market view
- The risk profile of the investor
- An investor’s current allocations to equities.
Things to remember while investing via STP:
- STP is the method that requires discipline; it’s not you who gets to cook your money overnight; it will take time to cover your returns.
- It would help if you kept an eye on the underlying assets and their phases.
- STP is one of the most reliable risk-reducing investments in which you can invest.
- Go with STP only if you have a lump sum amount to invest.
- You need to make at least 6 STPSs as per the SEBI guidelines.
In short, STP is a useful strategy to manage risks without affecting your returns significantly.
SIP – The recommended option
A SIP (Systematic Investment Plan) is an ideal way of investing in mutual funds. It allows you to invest in regular intervals. It is also called the “planned way of investing.” It helps investors to cultivate a habit of saving and accomplish the goal of wealth creation.
Through SIP, you can invest in a quarterly, monthly, or weekly basis as per your convenience. A fixed amount is debited from the policyholder’s account and invested in mutual funds. As you start investing a pre-decided number of units get allocated as per the current market price. Besides, mutual funds plans are flexible in nature, and you also have the option to discontinue it whenever you wish. However, you make the most out of Mutual Funds investments, remember to stay invested for a long period.