SIP vs STP: Understanding Key Differences and Strategies

STP involves transferring a fixed sum from one Mutual Fund scheme to another, on a periodic basis. Investors use STP to gradually move their investments from a low-risk asset to a high-risk asset. For example, an investor can start by putting money in Debt Funds and slowly move it to Equity Mutual Funds. This helps reduce the impact of market fluctuations and allows for a smoother entry into equities. STP is ideal for investors who want to enter the market gradually and adjust investments as goals or risk preferences change.

How does STP work?

1. Initial Deposit: In this stage, you add your money into a relatively low-risk investment instrument. For instance, a Debt Fund that is expected to yield reasonable returns over the long run.
2. Regular Transfers: You set up a regular transfer of a fixed amount of money from one Fund, e.g. a Debt Fund, to another Fund, e.g. an Equity MF.
3. Timing the Market: With STP, you can time the market smartly. If the market is unpredictable, you can keep your money safe in a Debt Fund. When the market becomes stable, you can move it to an Equity Fund.
4. Risk Management: STP helps to keep your money safer as it is transferred in small amounts instead of all at once. This is ideal when the market is very volatile.

STP vs SIP

Here are the differences between SIP and STP, explained in detail:

STP vs SIP: when to use which one?

• SIP is recommended if you want to invest slowly over a long time, putting in a small amount regularly while accepting market ups and downs. It is good for building wealth gradually.
• STP is ideal for new investors who want to gradually invest a lump sum from a low-risk asset into higher-risk Funds, balancing growth and risk over time.

SIP Calculator

The ICICI Bank SIP Calculator helps you see how your monthly investments can grow over time. It calculates this based on how much you invest, how long you want to invest and how much you expect to earn. For example, if you invest ₹ 1,000 every month for 5 years with an expected return of 12%, your investment will grow to ₹ 81,104 after 5 years. The SIP Calculator is a valuable tool that helps you estimate future returns, make informed decisions about your investments and plan your finances efficiently for long-term wealth creation.

Conclusion

SIP and STP are both good ways of investing in Mutual Funds, but the objectives of each are different. SIP is suitable for those who want to invest a certain amount of money on a regular basis and let it accumulate over time. On the other hand, STP is more useful when dealing with a large sum of money as it helps investors transfer it in stages to different types of Funds. Knowing the difference between both strategies will assist you in selecting the one which suits you. Also, remember to use the ICICI Bank SIP Calculator when planning your investments. It will help you estimate your returns and ensure you're on the right path to achieve your financial goals.

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