Systematic Transfer Plan (STP): The Middle Ground Between Lumpsum & SIP
Learn how STP works, when to use it over lumpsum or SIP, tax implications, and optimal STP duration for different amounts.
You have a lumpsum to invest but worried about market timing. SIP would mean your money sits idle. Is there a middle ground?
Yes—Systematic Transfer Plan (STP). It lets you invest your lumpsum in a safe fund and gradually transfer to equity, getting the best of both worlds.
What is STP?
A Systematic Transfer Plan automatically transfers a fixed amount from one mutual fund (source) to another (target) at regular intervals.
| Component | Description |
|---|---|
| Source fund | Where your lumpsum is parked (usually liquid/debt fund) |
| Target fund | Where money goes (usually equity fund) |
| Transfer amount | Fixed sum moved each period |
| Frequency | Weekly, monthly, or quarterly |
Example: ₹12 lakh in Liquid Fund → ₹1 lakh/month to Flexi-cap Fund for 12 months.
Calculate your STP growth: Use our SIP Calculator to model STP returns.
How STP Works
Step-by-Step Process
| Step | Action |
|---|---|
| 1 | Invest lumpsum in liquid/ultra-short fund |
| 2 | Set up STP to equity fund |
| 3 | Fixed amount transfers automatically |
| 4 | Source fund earns while waiting |
| 5 | Target fund benefits from averaging |
₹10 Lakh STP Example (12-Month)
| Month | Liquid Fund Balance | Transfer | Equity Fund |
|---|---|---|---|
| 0 | ₹10,00,000 | - | ₹0 |
| 1 | ₹9,04,000 | ₹83,333 | ₹83,333 |
| 3 | ₹7,10,000 | ₹83,333 | ₹2,52,000 |
| 6 | ₹4,18,000 | ₹83,333 | ₹5,15,000 |
| 9 | ₹1,28,000 | ₹83,333 | ₹7,82,000 |
| 12 | ₹0 | ₹83,333 | ₹10,60,000 |
Assumes 6% liquid fund return, variable equity returns
STP vs Lumpsum vs SIP
Comparison
| Factor | Lumpsum | STP | SIP |
|---|---|---|---|
| Investment | All at once | Gradual from lumpsum | From monthly income |
| Market timing risk | Highest | Moderate | Lowest |
| Opportunity cost | Lowest | Low | Highest |
| Best when | Markets low, long horizon | Have lumpsum, uncertain markets | Regular income stream |
| Return potential | Highest (if timing right) | Moderate | Lower |
When Each Wins
| Market Scenario | Best Strategy | Why |
|---|---|---|
| Rising markets | Lumpsum | Full exposure from day 1 |
| Falling markets | STP | Averages down, reduces impact |
| Volatile/sideways | STP | Benefits from volatility |
| Gradual rise | Lumpsum > STP | STP misses some gains |
| Sharp correction then recovery | Depends on timing | Either can win |
Historical Analysis
Over 20-year periods:
| Strategy | Won (% of cases) |
|---|---|
| Lumpsum | 66% |
| STP (12-month) | 34% |
Lumpsum usually wins because markets rise more than fall. But STP provides better sleep.
Types of STP
By Source Fund
| Source Type | Risk | Return | Best For |
|---|---|---|---|
| Liquid fund | Very low | 4-6% | Short STP (< 6 months) |
| Ultra-short fund | Low | 5-7% | Medium STP (6-12 months) |
| Short-term debt | Low-moderate | 6-8% | Longer STP (12+ months) |
| Arbitrage fund | Low | 5-7% | Tax-efficient STP |
By Transfer Type
| Type | Description | Use Case |
|---|---|---|
| Fixed STP | Same amount each period | Most common |
| Flexi STP | Amount varies based on rules | Advanced |
| Capital appreciation STP | Transfer only gains | Conservative |
Optimal STP Duration
By Amount
| Lumpsum Amount | Recommended Duration | Monthly Transfer |
|---|---|---|
| ₹1-3 L | 3-6 months | ₹33K-50K |
| ₹3-10 L | 6-12 months | ₹50K-1 L |
| ₹10-25 L | 12-18 months | ₹1-1.5 L |
| ₹25-50 L | 18-24 months | ₹1.5-2 L |
| ₹50 L+ | 24-36 months | ₹2-3 L |
By Market Condition
| Market State | PE Ratio | STP Duration |
|---|---|---|
| Undervalued | < 18 | Shorter (3-6 months) |
| Fair value | 18-22 | Standard (6-12 months) |
| Overvalued | 22-25 | Longer (12-18 months) |
| Expensive | > 25 | Extended (18-24 months) |
Rule of thumb: Higher valuations = Longer STP duration.
Tax Implications of STP
Each Transfer is a Redemption + Purchase
| Transaction | Tax Treatment |
|---|---|
| Transfer from source fund | Capital gain/loss |
| Investment in target fund | New purchase (no tax) |
Tax by Source Fund Type
| Source Fund | Holding < 3 Years | Holding > 3 Years |
|---|---|---|
| Liquid/Debt | Slab rate | Slab rate (no indexation) |
| Equity/Arbitrage | 20% STCG | 12.5% LTCG above ₹1.25 L |
STP Tax Example
₹10 L in Liquid Fund, 12-month STP
| Month | Transfer | Gain | Tax (30% slab) |
|---|---|---|---|
| 1 | ₹83,333 | ₹400 | ₹120 |
| 6 | ₹83,333 | ₹2,000 | ₹600 |
| 12 | ₹83,333 | ₹3,500 | ₹1,050 |
| Total | ₹10 L | ~₹22,000 | ~₹6,600 |
Tax-Efficient STP Options
| Strategy | Benefit |
|---|---|
| Arbitrage fund as source | Equity taxation (lower if > 1 year) |
| Capital appreciation STP | Only gains transferred, principal stays |
| Longer holding in source | More time for gains to compound |
When to Use STP
Ideal Scenarios
| Situation | Why STP Works |
|---|---|
| Received bonus/inheritance | Large sum, want to reduce timing risk |
| Property sale proceeds | Very large amount, need systematic entry |
| Matured FD/PPF | Debt → Equity transition |
| Retirement corpus | Phased investment for income planning |
| Markets at highs | Worried about buying at peak |
When NOT to Use STP
| Situation | Better Alternative |
|---|---|
| Small amounts (< ₹1 L) | Direct lumpsum |
| Markets crashed significantly | Lumpsum (valuations attractive) |
| Regular monthly income | Regular SIP |
| Need money within 3 years | Don't invest in equity at all |
| Very long horizon (15+ years) | Lumpsum (time overcomes timing) |
Setting Up STP: Step by Step
Online (Most Platforms)
| Step | Action |
|---|---|
| 1 | Invest lumpsum in liquid/debt fund |
| 2 | Go to STP section in app/website |
| 3 | Select source and target funds |
| 4 | Choose amount and frequency |
| 5 | Select start date and duration |
| 6 | Confirm with OTP/password |
Requirements
| Requirement | Details |
|---|---|
| KYC | Complete KYC mandatory |
| Same AMC | Both funds must be from same fund house |
| Minimum amount | Usually ₹500-1,000 per transfer |
| Folio | Same folio for both funds |
STP Strategies
Strategy 1: Standard Fixed STP
For: Most investors
| Parameter | Setting |
|---|---|
| Source | Liquid fund |
| Transfer | Equal monthly amounts |
| Duration | 6-12 months |
Example: ₹6 L → ₹50,000/month for 12 months
Strategy 2: Accelerated STP
For: Moderately bullish view
| Month | Transfer % | Amount (₹12 L) |
|---|---|---|
| 1-3 | 15%/month | ₹1.8 L |
| 4-6 | 10%/month | ₹1.2 L |
| 7-12 | 5%/month | ₹60 K |
Front-loads investment while maintaining some averaging.
Strategy 3: Value-Based STP
For: Active investors
| Market Move | Transfer Amount |
|---|---|
| Market down 5%+ in month | 150% of normal |
| Market flat | 100% of normal |
| Market up 5%+ in month | 50% of normal |
Invests more when markets fall.
Strategy 4: Trigger STP
For: Those wanting systematic entries on dips
| Trigger | Action |
|---|---|
| Nifty PE < 20 | Transfer ₹1 L |
| Nifty PE < 18 | Transfer ₹2 L |
| Nifty PE < 16 | Transfer ₹3 L |
| Time limit (12 months) | Transfer remaining |
Waits for value but has a deadline.
STP Calculator Logic
Expected Return During STP
| Component | Return | Contribution |
|---|---|---|
| Liquid fund (remaining balance) | 5% | Declining |
| Equity fund (growing balance) | 12% | Increasing |
| Blended return | 8-10% | Over STP period |
After STP Completion
Once fully transferred to equity:
- Full exposure to equity returns (12%+ expected)
- No more averaging benefit
- Long-term compounding begins
Common STP Mistakes
1. Too Short Duration for Large Amounts
| Amount | 3-Month STP | Issue |
|---|---|---|
| ₹20 L | ₹6.67 L/month | Still market timing risk |
Solution: Extend to 12-18 months.
2. Choosing Wrong Source Fund
| Mistake | Problem |
|---|---|
| Equity fund as source | High volatility, defeats purpose |
| Long-duration debt fund | Interest rate risk |
Solution: Stick to liquid or ultra-short funds.
3. Stopping STP During Crash
| Scenario | Instinct | Right Action |
|---|---|---|
| Market crashes 20% | Stop STP | Continue or increase |
| Market keeps falling | Cancel STP | Keep investing |
Crashes are when STP works best—you buy more units.
4. Ignoring Tax Efficiency
| Choice | Tax Impact |
|---|---|
| Debt fund STP | Gains taxed at slab rate |
| Arbitrage fund STP | Equity taxation (lower) |
Solution: Consider arbitrage funds for source if tax bracket is high.
STP vs Direct SIP
When You Have Lumpsum
| Option | Scenario | Outcome |
|---|---|---|
| STP | ₹12 L → ₹1 L/month for 12 months | Money works while waiting |
| SIP | Keep ₹12 L in savings, SIP ₹1 L/month | ₹11 L earns only 3-4% |
STP wins: Source fund earns 5-6% vs savings 3-4%.
The Math
₹12 L over 12 months:
| Strategy | Interest on Waiting Money | Difference |
|---|---|---|
| STP from liquid fund | ~₹35,000 | +₹35K |
| SIP from savings account | ~₹22,000 | Baseline |
STP earns ₹13,000+ more just from source fund returns.
Conclusion
| Situation | Best Choice |
|---|---|
| Lumpsum + uncertain markets | STP (6-12 months) |
| Lumpsum + markets crashed | Lumpsum or quick STP (3 months) |
| Lumpsum + markets at highs | Extended STP (12-18 months) |
| Regular income | Regular SIP |
| Small amount (< ₹1 L) | Direct lumpsum |
STP is the goldilocks solution—not too risky like lumpsum, not too slow like sitting in savings. It's ideal when you have a lumpsum and want systematic equity entry.
Key takeaways:
- STP reduces timing risk while keeping money productive
- Longer STP for larger amounts and higher valuations
- Continue STP during crashes—that's when it helps most
- Consider tax implications (arbitrage fund as source)
- 6-12 months is standard; adjust based on amount and markets
Calculate your STP returns: Use our SIP Calculator to model how your systematic transfers grow over time.