SIP or STP in a smallcap scheme? | Value Research If you have a lot of money lying idle in your savings bank account, you can opt for the STP route. Otherwise, you can start a Systematic Investment Plan (SIP) in a smallcap scheme
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SIP or STP in a smallcap scheme?

If you have a lot of money lying idle in your savings bank account, you can opt for the STP route. Otherwise, you can start a Systematic Investment Plan (SIP) in a smallcap scheme

I am a 26-year-old school teacher with an annual salary of ₹4.4 lakh. I want to invest in equity mutual funds with a time-frame of 10 to 15 years. I am already putting ₹1.5 lakh every year in my Public Provident Fund (PPF) account since the last two years. I can invest ₹1.5 lakh every year in equity funds through a monthly Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) of ₹12,500. My financial goals are medical expenses of my parents in old age (they are 54 years old) and also my own retirement planning and other miscellaneous expenses like house renovation/paint etc. Somebody has suggested that I put a lumpsum amount ever year in a liquid or short-term debt fund and use STP mode to transfer ₹12,500/- monthly to small cap funds, since i am very young and I can take risk. Tell me whether this approach is right and also please tell me best portfolio for small cap funds and liquid/ debt short term funds for investment.
Ashish Malhotra

To begin with, you should create a contingency fund that would cover your six month's living expense and a medical emergency of your parents. You should set aside more for the medical emergency if your parents don't have a medical insurance cover. You can keep the money in a bank fixed deposit (or half the money in a liquid fund) that can be broken easily. A contingency fund is very important because it will ensure that a financial emergency won't upset your investment plans in a big way.

If you have a lot of money lying idle in your savings bank account, you can opt for the STP route. Otherwise, you can start a Systematic Investment Plan (SIP) in an equity scheme. However, remember that you should invest in equity only to fund your financial goals that are at least five years away.

As far as investing in a small cap scheme is concerned, don't go by the theory that you are young and you can take risk. Risk-taking ability differs from individual to individual. Ask these questions: Do you think you can withstand the volatility, typically associated with small cap schemes? Would you be okay if you see your investment lose value sharply? Would you still continue with your investment plan? If the answer to these question is a resounding yes, go ahead and invest in a small cap scheme.

Here is a list of top-rated small-cap schemes.


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