Want to invest a lump sum amount in a mutual fund, but are concerned about timing the market?
Here's the risk-reducing way to do this. Check this π§΅
Here's the risk-reducing way to do this. Check this π§΅
You may already be aware of SIP(Systematic Investment Plan), in which your money is transferred from your bank account to the fund each month to buy some units of the mutual fund.
But what to do when you have a lump sum amount and still want to get the benefit of SIP? π€
But what to do when you have a lump sum amount and still want to get the benefit of SIP? π€
The first option is to keep the money in the savings account and continue SIPing.
Here, your idle money in the savings account would give you 3-4% of returns.
The second option is STPπ§
Here, your idle money in the savings account would give you 3-4% of returns.
The second option is STPπ§
STP is a systematic transfer plan.
In this, you invest in 2 funds simultaneously, one is called source fund and the other is the destination fund.
In this, you invest in 2 funds simultaneously, one is called source fund and the other is the destination fund.
The source fund is where you invest a lump sum amount, and the destination fund is where you withdraw the amount from the source fund and invest in the destination fund periodically.
This process of periodic transfers can be automated π€―.
This process of periodic transfers can be automated π€―.
For example, you can select a debt fund as the source fund that can give returns in the range of 6-8% and the destination fund where you wanted to actually do a SIP.
Using this process of STP, you have reduced your risk of investing the full amount in the fund of your choice.
Using this process of STP, you have reduced your risk of investing the full amount in the fund of your choice.
With STP, you still get the greatest benefit of SIP, that is rupee cost averaging.
There are 3 types of STP:
- Fixed STP (β)
- Capital Appreciation STP (π)
- Flexi STP (π€Έ)
- Fixed STP (β)
- Capital Appreciation STP (π)
- Flexi STP (π€Έ)
Fixed STP:
Here, the amount and frequency of transfer are fixed. Investors can decide on this amount as per their financial goal and apply for the same.
Here, the amount and frequency of transfer are fixed. Investors can decide on this amount as per their financial goal and apply for the same.
Capital Appreciation STP:
For this kind of STP, only the capital appreciated is transferred from the source fund to the destination fund, and the capital part remains safe.
For this kind of STP, only the capital appreciated is transferred from the source fund to the destination fund, and the capital part remains safe.
Flexi STP:
Flexi STP is flexible. You can choose to transfer a varied amount from the source fund to the target fund.
For instance, if the Net Asset Value of the destination fund dips, then you can increase the amount and vice versa.
Flexi STP is flexible. You can choose to transfer a varied amount from the source fund to the target fund.
For instance, if the Net Asset Value of the destination fund dips, then you can increase the amount and vice versa.
Things to consider before starting an STP:
- You have a lump sum amount that you won't need in the immediate future.
- Want to reduce the risk of timing the market.
- Select a source fund that has a low exit load(ideally 0)
- STP can reduce risk but can't remove it completely.
- You have a lump sum amount that you won't need in the immediate future.
- Want to reduce the risk of timing the market.
- Select a source fund that has a low exit load(ideally 0)
- STP can reduce risk but can't remove it completely.
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