Understanding STP

I understand what SIP is, but I want to know about STP? Also give me your opinion on the new Axis Banking Debt fund?
-Sunita

The basic premise of systematic investment plans (SIP) is that you shouldn’t invest in one go, you should spread your investments to take advantage of different market levels. An STP is a systematic transfer plan that is useful when you have a big amount to invest, but don’t want to invest it into an equity mutual fund in lump sum, because you might catch a peak. In such a scenario, you can invest that entire amount in a debt fund or a liquid fund, which are not affected by the ups and downs of the equity markets. And from that debt fund, you mandate that a particular amount is periodically transferred to an equity fund. That is how an STP works.

Coming to your second question, we generally advice investors to stay away from new funds, which also applies to the Axis fund you've asked about.

This article was originally published on June 08, 2012.