People sometimes cannot invest regularly an amount for the purpose of saving into funds. And if you are one of them, then here is a perfect solution. Systematic Transfer Plan (STP) enables an investor to invest their amount into a liquid fund which will be systematically transferred to an equity fund every month. Therefore unlike the Systematic Investment Plan (SIP), where you need to regularly invest certain sum of cash every month, STP is another option to look out for.
Benefits of STP:
Unlike the SIP route which is generally recommended for an investor who is knows guaranty that he will be getting regular income, STP is for those investors who wish to invest a lump sum amount as a one shot investment.
Let us see other options; if you wish to invest a lump sum amount in your savings bank account and then do an SIP you will be entitled for 4% of interest on the remaining amount. Considering another better alternative will be to save the fund in a good performing liquid fund so that when your funds are transferred to equity funds the balance present in the base fund will give you returns from a minimum of 5% to a max of about 7%.
What you should know:
It is important that you choose your base fund and the fund to which your funds will be STP-d to be from the same fund house. If you are a business person or are involved in a lot of activities and are more tech oriented, you can opt for this option even while you are at home through the online services provided many transaction portals. You need to be wise when it comes to choosing funds. Make prudent decisions while deciding whether you need to transfer your funds in equities, which is best if you have a long term investment pattern or whether you need to invest in debt if you are approaching retirement. But make sure that you invest your chunk of income into the two funds are from the same fund house.
All you need to do is, pick a good Asset Management Company that has been a good performer and fill out a form and put your money into a good performing liquid fund. The next step will be to fill out another form for completing the procedure of Systematic Transfer Plan (STP) and also specify the equity fund where you wish to invest your money into. Equities investment is best for those investors who wish to invest rigorously and increase the return on their investments for long term growth
If you do not have a good risk appetite and are looking to invest in debt funds then ultra short term funds and other debt funds are better options. It is not always that liquid funds should be utilized for making your initial investments. In fact ultra short term funds and short term funds can be utilized as source funds where you can stash away your lump sum investment first into. However this is not recommended for those investors who are risk averse since there is a lot of market volatility that is behind the returns generation. Basically Short term funds function as per the markets movements’. If the underlying market securities rise upwards or fall downwards depending on the market’s performance, as an investor you are getting into risk since you are at the risk of losing out on your capital investment due to the same phenomena. If you want to abide the path of credit risk by taking a personal loan, car loan etc, it is best advised that you carefully evaluate your options and then zero down on your selection.