STP vs SIP: Systematic Investment Plan, commonly known as SIP also known as, It is a popular investment option among investors. According to this Investors can invest a fixed amount every month in exchange traded funds and mutual fund schemes for a long period of time. in this Investing is also considered a good way to avoid the risks caused by market volatility. Systematic Transfer Plan like SIP (PLS) Investors can also invest a fixed amount in mutual funds on a fixed date. STP is a type of SIP that is done from one mutual fund to another mutual fund.
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What are the advantages of STP
- STP SIP It is a type of scheme that allows investors to transfer a fixed amount from one scheme to another of the same asset management company at regular intervals.
- This facility helps investors to rebalance their investment portfolio without any hassle while switching between different asset classes. This reduces volatility and helps in achieving financial goals.
For example, suppose an investor sells one of his properties and earns a lump sum of Rs 20 lakh. He can invest his entire amount in money market or liquid fund and then to the fund house for the next 20 years. One can ask to transfer one lakh rupees every month to equity mutual funds over a period of months. This will help in dealing with market volatility and bring down the cost of acquisition. - It is a plan that allows investors to transfer funds or units from one scheme to another scheme of the same mutual fund house from time to time. In this way, your amount can be transferred regularly from one scheme to another scheme of your choice.
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What are the types of STP
There are many types of STP, out of which you can choose any one according to your convenience. for example, Under Fixed STP, Investors transfer a fixed amount from one fund to another. Capital appreciation in STP, Investors invest the profit from one investment in another investment fund. Similarly, in Flexi STP, The investor has the option to choose a variable amount. The fixed amount is a minimum amount and the variable amount depends on the market volatility.
Who is better in STP and SIP?
as mentioned above, STP actually works like a SIP where a fixed amount is invested in a particular fund. Although, If you have lump sum amount to invest then it is better to invest it through STP. Therefore, It would be better to invest a lump sum in a low risk debt fund and then schedule an STP in an equity fund of your choice. Although, If money is withdrawn before certain interval (Usually one year for equity funds) So investors should check the exit load charges levied by mutual fund houses. Although, There is no exit load on liquid funds and most STPs transfer money from liquid funds to equity funds without any exit load.
Overall it can be said that STP and SIP are two different modes of investment. Both have their advantages and disadvantages. STP is better for investors who have a lump sum amount in hand and want to take advantage of cost averaging and volatility.
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