For freelancers and businesspersons, STP, not SIP, is your best friend

Just because Sachin Tendulkar is most Indians' favourite batsman doesn't mean he has to be yours too. Maybe Glenn McGrath's gawky, ill-at-ease stint with the bat gets you going. To each your own.

Similarly, SIP can't be everyone's cup of tea. While SIP is sahi hai and widely viewed as the de facto investment style, it is not a cookie-cutter solution for all - especially if you are an irregular income earner (freelancer, business owner or self-employed).

So, if you fall into this camp, it's not SIP but STP (short for systematic transfer plan) that should be on your speed dial. That's because SIPs require you to invest diligently and systematically at a specific time, a luxury you may not enjoy.

The other option you have is lumpsum (one-time) investments. Although lumpsum investing can deliver decent returns and seems convenient from an investment perspective, you are at the mercy of market timing and can miss out on good opportunities.

Hence, the most effective investment strategy for irregular income earners is STP. It allows you to transfer your money from one fund to another.

How to do STP

One of the most effective strategies whenever you receive your pay is as follows:

• Open a second bank account or invest in a liquid fund. Park your income there.
  
• We'd prefer you invest in a liquid fund. They usually offer higher interest rates than savings accounts.
  
• If your money is in a liquid fund, activate the STP.
  
• So, whenever you have some investable amount in two to three months, the STP feature will automatically transfer your money from the liquid fund to another mutual fund that can grow or protect your wealth in a superior way.

Do you also earn a minimum income each month?

In that case, you can establish an SIP for the regular income, while the additional income can be invested as mentioned above. This hybrid approach would work best.

The last word

STPs, SIPs and mutual funds, among others, may sound confusing or too much work for a new investor.

But last-minute or random planning can batter your hard-earned money. For example, imagine you were a self-employed consultant back in 2008 and invested Rs 1.2 lakh in a tax-saving fund in one go, anticipating good returns because many markets around the world were touching new peaks. But by the end of the year, the value of the invested amount would have plummeted to Rs 52,500 due to the Global Financial Crisis. Like many, you might have pulled your money from the fund at a massive loss!

Therefore, the moral of the story is to be systematic with your investments - even if you are an irregular income earner.

Also read: Personal finance strategy for self-employed and freelancers

This article was originally published on October 12, 2023.