Mitigate Risks With SIPs
By investing a fixed amount periodically, you eliminate the risk of timing the markets…
By Research Desk | May 9, 2011
I plan to invest Rs1 lakh in a mutual fund at one go. Could you suggest if I should opt for STP route? In which funds can I park part or all of this amount?
— Ajith Nair
The virtues of systematic investing are well etched over lumpsum investments. By investing a fixed amount at predetermined intervals, the trouble of figuring the best time to invest is eliminated. It also offers an efficient and convenient way to ride market volatility. You are on the right track to consider a systematic transfer plan (STP) which is simply a mode to transfer your money from one fund to another at pre-defined intervals. This is a far better way to deploy lumpsum investments into systematic investment plans (STPs).
Most often, investors park a lumpsum 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 liquid funds to start an STP. However, your choice of the equity fund will depend on your investment time frame and investment objective. Investing in a large-cap fund such as Franklin India Bluechip or DSPBR Top 100 Equity is a good start. 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.