05 Jun 2018
STPs could be used in many ways. It could be used as a capital protection strategy wherein only the appreciation amount can be transferred to equity funds over a long period of time. This is the safest strategy and accordingly, returns would be modest too. Another way to use STPs is when clients want to invest lumpsum in equity funds but not sure about which way the markets would go and therefore want to reduce the risk. In such cases, you can do a fixed monthly transfer of amount in such a way that the funds in debt scheme is exhausted in 6 months or 1 year or 3 years, as the case may be. This is not a capital protection strategy but has the potential to enhance the returns due to higher exposure in equity market while reducing some risk by spreading equity allocation over a few months or years. STP is a wonderful tool. Use it well.