I am writing this article to explain to you why STP which stands for "systematic transfer plan" is better than SIP (systematic investment plan) for equity mutual fund investment when you have a lumpsum amount in your bank account.
Suppose you have 1 lakh rupees in your account and you want to invest it in equity.
We have understand that investment in equity is subject to market risk and it is having high volatility but at the same time history has proven equity as the best form of investment option for human kind.
Understanding everything we know how SIP can save us from market fluctuation and it is the best means for a layman to invest in equity but what should you do if you have lots of funds in you account from a bonus or sale of property? Should you keep that amount in bank and slowly invest through SIP?
The answer is NO. Bank these days are giving only 3.5% return keeping huge amount in savings banks account will not be the wisest investment approach. Put the lumpsum amount in liquid fund.
These are the funds which invests in government securities with very short expires as a result they never go down and gives a approximate return of ~6%. Then start one or multiple STPs from liquid fund to equity fund. Simple!!
List of liquid funds to invest : http://www.moneycontrol.com/mutual-funds/performance-tracker/returns/liquid.html
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