Let’s say you receive a lump sum amount, such as a bonus or variable pay, and you are considering investing it in an equity mutual fund. Rather than investing the entire amount as a lump sum, a better approach could be to implement a Systematic Transfer Plan (STP).

STP is a strategic approach that allows an investor to transfer an amount from a debt to an equity mutual fund periodically. It is a strategy that helps you gradually move a lump sum into equities, thus reducing the potential risks associated with market volatility.

How does STP work?

Lump Sum Investment: Invest in a source fund typically a debt fund from his/her bank account. It is done as a single payment.

STP set up: Specify the transfer amount along with the frequency. The target fund is selected which is typically equity fund. Automatic Transfers: The specified amount transfers automatically. This happens on the chosen date/day. Units are redeemed from a debt fund and are invested in a selected equity fund.