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Investing in  mutual funds through the Systematic Investment Plan SIP has become quite popular in the past few years. However, other than SIP, some methods serve the purpose of investing and withdrawing systematically. Therefore, one can use the Systematic Transfer Plan STP and Systematic Withdrawal Plan SWP to follow a systematic plan for their investments.  Here, in this article, we will provide you with all details about SIP and STP. Also, the difference between SIP and STP to understand which systematic methods are suitable.

What is a SIP (Systematic Investment Plan)?

Systematic Investment Plan SIP is a disciplined way of investing in mutual funds. Through SIP, investors can deposit a fixed amount at regular intervals – weekly, monthly, quarterly, etc., in any of the mutual fund schemes. The small amount of investment can be as low as INR 500. This helps in building a corpus over a period of time. The amount is auto-debited from the investor’s bank account on a selected date. Based on the mutual fund scheme, the fund manager will allocate the equity or debt amount. 

Investment in mutual funds through SIP helps investors to maintain discipline in their savings. Also, SIP investors do not worry about market fluctuations and the timing of the market. It allows investors to spread their investments over time and averages their purchase cost at different market levels. Hence, this gives them a benefit of rupee cost averaging and the power of compounding. Furthermore, staying invested for long and not withdrawing money can benefit investors. 

Moreover, investing in tax saving schemes, i.e. ELSS funds (Equity Linked Savings Scheme) through SIP provides a tax deduction under Section 80C up to INR 1.5 lakhs. Also, one can use Scripbox’s SIP Calculator to calculate SIP return. 

What is an STP (Systematic Transfer Plan)?

STP Systematic Transfer Plan is where an investor can transfer money from a mutual fund scheme to another scheme. However, one can transfer money from one scheme to another of the same mutual fund house and not of other fund houses. STP helps investors in transferring systematically and periodically. 

In Systematic Transfer Plan STP, investors invest a lump sum in a fund (usually a debt fund) and then transfer a fixed amount regularly to an equity fund. Investors who have excess money lying idle in their account can park the money in a liquid fund or an ultra short term fund or. Investors can earn a little extra on their lumpsum investment while transferring money to an equity fund from this process.  Also, the investors have to decide the period over which they want to transfer the amount from one fund to another. And they need to determine the amount for transfer. Generally,  STP is suitable for investors who are reluctant to invest their lump sum money at once in equity funds

Moreover, investors can also put their lump sum money in an equity fund and look for a systematic withdrawal. This is another method of withdrawing money from a mutual fund scheme known as systematic withdrawal plan SWP. SWP is opposite to SIP. Here, the investors have an option to withdraw a fixed sum of money at regular intervals after investing a lump sum amount in a mutual fund scheme. This withdrawal acts as a steady income for many individuals (E.g., senior citizens) 

Key Differences between SIP and STP

There are several benefits of SIP and STP modes of investment. The following parameters which summarise the difference between STP and SIP

Plan TypeInvestment PlanTransfer Plan
ProcessA fixed sum of money is invested in one scheme
at regular intervals deducted from the bank account.
The money is transferred from one mutual fund scheme
to another scheme at regular intervals of the same fund house. 
PurposeLong term capital appreciationCapital appreciation for excess idle money lying in the bank account
TaxationNo tax applies to investing.
However, capital gains are applicable at redemption, i.e. STCG or LTCG. 
Tax is applicable on every monthly transfer amount
as this amount is considered redemption from the previous mutual fund.
AdvantagesPower of compounding,
rupee cost averaging and disciplined investment approach. 
Consistent returns,
portfolio rebalancing, rupee cost averaging. 

Read also about the NPS vs SIP

Which is Better Investment between STP and SIP?

Many times, it is very confusing to choose between SIP and STP. Therefore, let us understand the differences between SIP vs STP. 

1. Type of Plan

In SIP, individuals invest a fixed sum of money in a particular mutual fund scheme. The money is invested at regular intervals. Generally, investors prefer SIPs in equity funds and for a longer horizon. 

In STP, lump sum money is first invested in a mutual fund scheme (usually a debt fund). This money is transferred at regular intervals in the equity scheme. Even here, the amount of transfer and tenure is predetermined. In other funds, money is transferred from one scheme to another periodically. 

2. Investors Suitability

SIP is suitable for investors who cannot invest a lump sum amount at once in mutual funds. It is ideal for those who have a long-term investment horizon wish to invest a small sum of money regularly. Generally, SIP is chosen by investors who want to achieve a particular investment objective. 

On the other hand, STP is preferable for investors who have excess idle money in their account. Also, these investors are reluctant to invest entire money at once. Therefore, investors can park their idle money in a liquid fund and transfer a small amount of money at regular intervals in equity funds, 

3. Taxation

In SIPs, no tax is applicable as there is an investment in a mutual fund. Additionally, individuals can invest in an ELSS fund (Equity Linked Saving Scheme) to claim tax deduction under Section 80C of the Income Tax Act, 1961 up to INR 1.5 lakhs. 

However, in the case of STPs, taxation is involved. Here, the funds are transferred from a liquid fund to an equity fund. Therefore, each transfer is considered redemption (for the liquid fund) and attracts capital gains tax

In case of equity funds, short term capital gains (STCG) is applicable if the redemptions happen within a year from the date of purchase. The STCG for equity funds is taxable at flat 15%. Similarly, if the funds are redeemed after one year, then long term capital gains are applicable.  LTCG is chargeable at 10% if the gains above INR 1 lakh. 

STCG is applicable if the funds are redeemed before three years from the date of purchase in case of debt funds. STCG is chargeable as per the individual income tax slab rate. On the other hand, LTCG is applicable if the funds are withdrawn after three years, LTCG is taxable at 20% without indexation. 

As per the Finance Bill 2023, debt mutual funds no longer have the benefit of LTCG. From April 1st 2023, the capital gains from debt funds will be taxed as per the investor’s income tax slab rate.

What to Choose between SIP and STP?

There is a significant difference between SIP and STP, and the objective of investment also differs. The basic idea in mutual fund SIP is staggering investments over a period of time. Also, parking the money idle in a liquid fund or ultra short term fund helps investors gain a little extra. This is better than parking money in a bank account. Furthermore, the returns of SIP and STP cannot be compared. They both provide the benefit of rupee cost averaging. In both the systematic methods, investors need not worry about market fluctuations. 

The need for choosing SIP and STP also differs. SIP is suitable for investors who wish to invest periodically for long term. Similarly, STP also can serve the same purpose. However, one has to invest a lump sum in a fund and then transfer it monthly for a certain period. SIP is more suitable for investors who do have lump sum money to invest. Such investors can invest a small amount regularly to maintain an investment discipline. On the other hand, investors who are reluctant to invest their entire money at once in an equity scheme can prefer the STP option. This method helps them in staggering their lumpsum investment. Also, one can just set a transfer without worrying about transferring the amount each time.

Ultimately, any investment decision depends on the financial objective of the investor. One has to make a wise investment decision based on their financial plan. 


There are many differences between all the mutual fund schemes. Therefore, Investors must be cautious while selecting their investing options. They should also understand the scheme’s structure before investing in them as mutual fund investments are subjected to market risk. Additionally, they should check whether such investment mode (SIP or STP or SWP)  is suitable for them or not. Keeping these things in mind will help investors to attain their financial plan objectives on time.