Kolkata: Mutual fund investments are becoming the most preferred route for the huge middle class in India with SIP (Systematic Investment Plans) alone funneling more than Rs 6,000 crore in December 2024, a figure that has been consistently bettering the performance in the preceding month for a long time. However, now that the market is in a correction mode, time for lump sum investments are also ripening. But since the markets are volatile too, it is time one takes a look at what lumpsum investments through systematic transfer plans (STPs) means and how it can be suitable for a category of investors.
It is basically a strategy that calls for a disciplined, planned transfer of a fixed amount between two mutual fund schemes. The basic objective is to ensure you don’t suffer from market volatility. The pre-determined amount of money is automatically adjusted between the mutual fund schemes that are also selected beforehand. Th etwo funds are in the same AMC (asset management company) or mutual fund house.
Averaging out the cost through STP
“The markets have been going through some degree of volatility and in such a scenario it is better to adopt a strategy that can be effective in volatility. 2025 can be a year for that. If one staggers lump sum investments one can possibly take volatility in one’s stride. This strategy helps one to counter volatility by averaging out the investment,” said director Wishlist Capital and veteran investment advisor Nilanjan Dey, who strongly advises against a one-time commitment of lump sum funds in choppy markets.
From a luquid fund into an equity fund: Common approach
One of the popular strategies is to put in the entire money into a liquid fund. A liquid fund is a mutual fund that invests in debt securities, which ensures stability. It also ensures a higher return (usually 6-7%) compared to a bank savings account. The next step is to transfer a pre-determined amount (usually every month) to a pre-determined equity-oriented mutual fund scheme. In this way, the entire amount originally transferred to the liquid fund is transferred over a few quarters.
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A Systematic Transfer Plan (STP) allows mutual fund investors to automatically transfer a pre-determined amount at pre-determined intervals from one mutual fund scheme to another in the same AMC — the most common movement being from a debt fund (which is safer) into an equity fund (which carries higher risk) to tackle market volatility. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
