Systematic Transfer Plan in Mutual Funds: How to use STP for fresh investments now

financialexpress.com:

With the Nifty scaling the 19,500-mark, an all-time high, many individuals may be a bit apprehensive about putting fresh money into equity-related investments. Experts suggest individuals should avoid investing lumpsum and instead stagger their investments through systematic transfer plans (STPs) through mutual funds.

As the indices across market caps are trading marginally above long-term average valuations, the probability of a substantial near-term loss is reduced in case of STP as investors get the benefit of averaging. It enables a disciplined and planned transfer of a fixed amount between twomutual fund schemes —from a low-risk option, such as a debt fund to a higher-yielding equity fund. So, investors who are wary of short-term volatility can consider making investments in a staggered manner, which can help to mitigate the impact of any market volatility.

Susmit Misra, chief business officer, Equentis Private Wealth, says as it is impossible to time the markets, it is always a prudent practice to stagger investments over a period of 3 – 12 months depending on the investor’s overall risk tolerance and market conditions. “Given the current market conditions we recommend that investors stagger their investments over a six-month time frame through weekly/monthly STPs,” he says.

In STP, an investor is automating, investing and staggering at the same time. Santosh Joseph, founder and managing partner, Refolio Investments, says if the markets were to go lower, the

subsequent STPs will start buying out more units for the same amount of money and the investment will average out. “An STP is a non-emotional, rational method to access, participate and stay invested in the market.”

The way to set up an STP is to do a lumpsum