VR Logo

SIP or STP: which is the best option?

If you sell your debt mutual fund investments before three years, you will have to pay short-term capital gains tax at the Income Tax rate applicable to you

I have invested ₹30,000 in Reliance Liquid Fund - Cash Plan. Now I want to invest in Reliance Small Cap Fund through a systematic investment plan (SIP). I am a bit confused whether I should start a SIP from my savings bank account or start a Systematic Transfer Plan (STP) from my Reliance Liquid Fund? Which is the best option for me?
- Harshal

It is not clear from your mail whether you want to use the money lying in your liquid fund for your new investment in Reliance Small Cap Fund. If the answer is yes, you have two options before you. You can redeem your investment in the liquid scheme and start a Systematic Investment Plan (SIP) from the proceeds in your savings bank account. The other option is to start a Systematic Transfer Plan (STP) and transfer the money from your liquid scheme to the small cap scheme you plan to invest. Both options will have tax implications. If you sell your debt mutual fund investments before three years, you will have to pay short-term capital gains tax at the Income Tax rate applicable to you. If you are opting for the first option of redeeming your entire investment, you can calculate the short-term/long-term gains easily. If you are choosing the second option, there will be short-term gains every time you transfer the money from the liquid scheme to the small cap. This is because every transfer would be a redemption in the liquid scheme and purchase in the small cap scheme. Some investors find this route a bit cumbersome because of this reason. You can pick an option as per your convenience.

Post Your Query