Normally, many investors would opt for Systematic Investment Plan (SIP) to invest in Equity Funds to average out their investments. In case of SIP, your money is deducted monthly from a bank account. The surplus cash lying in your bank account would earn 3% - 3.5%. Instead, you can invest the money lumpsum in a Debt Fund which can yield more than savings account.

So how do you go about it?

Invest lump sum in Liquid Fund or Ultra Short Term Fund. Opt for a Systematic Transfer Plan (STP) that will allow you to transfer a fixed amount from Liquid Fund to an Equity Fund.
Your surplus cash in Liquid Fund or Ultra Short Term Fund is earning more than savings account and at the same time you get the benefit of averaging out your investments in an Equity Fund. Thus, you don’t need to time the market by waiting for the right opportunity to enter the market. Remember the old adage – it's not about timing the market, but about time in the market.

You can also use STP to rebalance your portfolio. For instance, if your target allocation in equity goes up from say 50% to 60% due to market rally, you can bring it back to 50% by transferring the gains through STP in a Liquid or Debt Fund. Similarly, you can make tactical entry into Equity when markets correct by doing an STP from Debt to Equity Fund.

You can initiate STP from an Equity Fund to a Debt Fund and vice versa.

The frequency of STP can be fortnightly, monthly, and even quarterly.

STP can be done within the same fund house schemes.

In technical parlance, the scheme in which the lump sum investment is made is source scheme/transferor scheme. The scheme to which the amount is transferred is called destination scheme/target scheme/transferee scheme

 

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