A Systematic Transfer Plan involves initially investing funds in a liquid form, which are then periodically transferred to either equity or debt mutual funds within the same fund house, according to Ruchi Sankhe, investment adviser at Infinity Investment Advisors.
In comparison, an SIP is when you put money from your bank account to your investments on a regular basis, she said.
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Sankhe lists three key benefits of STPs:
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Helps you stick to your allocation.
Keeps the investment process objective and disciplined.
Advisable in the current market scenario.
STP is ideal for someone who has regular income coming in and they can do such kind of investment, according to Arnav Pandya, founder of Moneyeduschool. All types of investors can look into STPs when large amounts have to be allocated to equities, he said.
STP ensures proper allocation of large amount and gives an average cost for the investor, Pandya said. But it is applicable only when you have a lumpsum, he noted.
He lists the investment pattern for STPs:
Initial lumpsum investment is in a short duration debt fund.
A regular sum is transferred to the equity fund each month.
"I would advice to defer the investment over the period of time. It makes sense to do an STP for a 6-8 month period ... given the way the market is right now, the levels at which the market is and the concerns that even the regulators are seeing at this point of time," Sankhe said.
"When you're investing in the small and mid caps, the horizon for investments should be long," she advised.
Query 1: I am an NRI living in the U.K. I want to start SIP and invest in the share market. I am looking to invest Rs 50,000-80,000 per month for the next 10 years, as I am planning to move back to India in the next 10-15 years.
Can you please suggest some funds that can give me at least Rs 10-15 crore returns, with adjusted inflation after 15 years.
Name: Divya I Age: 38 years.
Arnav Pandya: Need to have realistic expectation. For 10 years time period, an equity portfolio is suitable. Expect 12% returns from the portfolio. Rs 80,000 per month for 10 years, earning 12% will be approximately Rs 1.84 crore after 10 years and Rs 3.2 crore after 15 years. Rs 10-15 crore return should be moderated.
Ruchi Sankhe: Expectations need to be tapered. Need to have high growth portfolio, with complete equity allocation. Allocation needs to be tilted towards mid and small caps. The Parag Parikh Flexi Cap and Kotak Multi Cap will allocate across segments.
Query 2: I currently hold Rs 15 lakh in mutual funds and would like to create a retirement corpus of Rs 5 crore, along with some extra funds for my child's education. Need some guidance in terms of my current investments.
Name: Swapnil I Age: 30 years.
Ruchi Sankhe: The fund quality of the portfolio looks good. Make sure to have a large-cap exposure through index funds. I will suggest that actively monitor the Smart Beta fund.
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