I have Rs 50,000 to invest in mutual funds for two years and want to protect my capital. I am very apprehensive about the high level of Sensex. I have heard about systematic transfer plan in mutual funds. Kindly, tell me clearly about STP and the best funds for it
– Rishi Tripathi
Your concerns about the high Sensex levels are understandable. However, bear in mind that two year investment horizon is too short for equity investments in mutual funds. Usually, it is recommended to have a time horizon of at least three years when investing in equity mutual funds as the markets can be very volatile in the short term.
A systematic transfer plan (STP) is simply a mode to transfer your money from one fund to another at pre-defined intervals. Most often, investors park a lump sum amount in a debt fund, from where a regular amount is transferred at periodic intervals, say monthly or quarterly into specific equity-oriented funds. This way the STP acts as an SIP into another fund, the only difference being that money flows from one fund to another in case of an STP instead of being transferred from your bank account.
You can select from any of the equity-oriented hybrid funds such as HDFC Prudence or Reliance Regular Savings Balanced and opt for an STP into a large-cap fund such as Franklin India Bluechip or ICICI Prudential Growth fund. But do so only if you understand the risks involved with the funds you are investing in because mutual fund investment is not risk free.
This article was originally published on January 07, 2011.
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