In plain words
Two funds, one standing instruction
You invest the full amount in a liquid or ultra short duration fund. You then give one instruction: move ₹X from this fund to that equity fund on a set date, every month, until the money runs out.
The money waiting in the liquid fund keeps earning a modest return, usually closer to a savings deposit than to equity. Each transfer buys equity units at that day's NAV, so you end up buying at several prices instead of one.
-
Day 1: full amount goes in
₹6,00,000 is invested in a liquid fund. It sits there, low on swings, earning a little every day.
-
Every month: a fixed slice moves
On the date you pick, ₹50,000 worth of liquid fund units are redeemed and the same rupees buy units of the equity fund.
-
Month 12: fully in equity
The liquid fund is close to empty. The whole sum now sits in equity, bought across twelve different prices.
Worked schedule
₹6 lakh moved over 12 months
₹50,000 transferred each month. The liquid fund balance is shown at an assumed rate for illustration of 6.5% a year; real liquid fund returns change with interest rates.
| After month | Moved to equity so far | Left in liquid fund | What it means |
|---|---|---|---|
| 3 | ₹1,50,000 | ₹4,58,989 | A quarter is in equity, the rest is still earning in the liquid fund |
| 6 | ₹3,00,000 | ₹3,15,674 | Half done, bought at six different NAVs |
| 9 | ₹4,50,000 | ₹1,70,018 | Three quarters in equity |
| 12 | ₹6,00,000 | ₹21,981 | Transfers end; the small extra earned can be moved in one go |
Assumed rate for illustration only, before tax and exit load. Mutual fund investments are subject to market risks, read all scheme related documents carefully.
Honest comparison
STP does not always win. Here is when it helps.
₹6,00,000 put into an equity fund at an NAV of ₹100, against ₹1,00,000 a month over six months. Made-up NAVs, two different markets.
Market dips, then recovers
NAVs: 100, 92, 85, 90, 96, 104
- Lump sum on day 1
- 6,000 units, worth ₹6,24,000
- STP over six months
- 6,377.7 units, worth ₹6,63,285
STP ahead. The cheaper months bought more units.
Market rises steadily
NAVs: 100, 104, 108, 112, 116, 120
- Lump sum on day 1
- 6,000 units, worth ₹7,20,000
- STP over six months
- 5,475.7 units, worth ₹6,57,087
Lump sum ahead. Every later month cost more.
Nobody knows in advance which of the two markets is coming. What STP buys you is a smaller regret either way, and a plan you are more likely to stick with. For someone investing a large amount in equity for the first time, that matters more than a few thousand rupees.
NAVs are invented to show the mechanics. Mutual fund investments are subject to market risks, read all scheme related documents carefully. Past performance may or may not be sustained in future.
Good fit
When we suggest an STP
- You have ₹2 lakh or more to put into equity and your horizon is 5 years or longer
- The money came in one go: annual bonus, matured endowment policy, PF on job change, sale of a plot
- You are new to equity and a 15% fall in the first month would make you sell
- You are moving money out of fixed deposits into equity and want to do it in steps
Not a fit
When we would skip it
- The amount is small. Under ₹1 lakh, a regular SIP from your salary does the same job.
- You need the money within 3 years. It should not be in equity at all; look at liquid or debt funds.
- The target is a debt or hybrid fund. The swings are small enough that spreading the entry adds little.
- You want income out of a corpus. That is the reverse direction, an SWP.
Choices you make
Setting one up, decision by decision
We fill the form with you. These are the four things you decide.
Two other STP types you may hear about
- Capital appreciation STP
- Only the gain in the source fund is moved, the principal stays put. Useful for slow, cautious exposure.
- Flexible STP
- The amount moved changes with a rule set by the fund house, for example more when the target NAV is lower. Fewer funds offer it.
Tax and costs
Each transfer counts as a sale
Every monthly transfer redeems liquid fund units, so it is treated as a sale of a debt fund. Gains on debt funds bought after 1 April 2023 are added to your income and taxed at your slab rate. Because the money sits in the liquid fund for only a few months, the gain on each transfer is small.
Equity units bought through each transfer have their own purchase date. When you sell them later, each lot is taxed on its own holding period: gains on units held over 12 months are long term, with the first ₹1.25 lakh of such gains in a year tax-free and 12.5% above that.
Rules as of 2026, check current rules. We are a mutual fund distributor, not a tax adviser; confirm your case with a chartered accountant.
Exit load check. Most liquid funds charge a small exit load only if units are redeemed within the first 7 days. Starting the first transfer a week or more after investing avoids it. The target equity fund has its own exit load, usually for redemptions within a year, which matters only when you sell, not during the STP.
Questions
STP, asked and answered
Still unsure? Send your question on WhatsApp.
What is the difference between STP and SIP?
A SIP takes money from your bank account every month, usually from salary. An STP takes money from a fund you already hold. SIP suits regular income; STP suits a sum you already have.
Can I stop or change an STP midway?
Yes. You can cancel it with a request to the fund house, usually effective within a few working days. The money left in the liquid fund stays there until you move or withdraw it.
Can the source and target be from different fund houses?
No. An STP works only within one fund house. To move between two fund houses you would redeem and invest again, which is two separate transactions.
What if the liquid fund runs out before the last transfer?
The last transfer moves whatever is left, or the instruction ends. We size the amount so the schedule finishes cleanly and any small balance can be moved in one go.
Is there a minimum amount?
Each fund house sets its own minimum, often a few thousand rupees per transfer and a minimum number of transfers. We check this when we pick the pair of funds.
Should I pause the STP if the market falls sharply?
Usually no. The months when prices are low are exactly when the STP buys more units. Stopping then removes the main benefit.
Plan my STP
Tell us the amount. We send back a transfer schedule.
Which category to target, how many months, how much per transfer, and the tax on each step. On WhatsApp, at no charge.
Related