The following article is an initiative of NSE- FinWiz and is intended to create awareness among readers
A SIP allows you to invest small amounts of money over time to build a corpus. It is a disciplined way of investing where investors invest a regular sum every month in mutual funds. SIP is also known as rupee cost averaging and it is the best way to handle volatility in investment. For example, you start to invest Rs 5,000 every month in a mutual fund. If you do it via SIP, this money will be taken from your account every month and invested in the mutual fund that you have selected for SIP.
STP is a variant of SIP. The basic idea behind an STP is to earn a little extra on the lump sum while it is being deployed in equity since debt funds provide better returns than a normal savings bank account. Returns in STPs are consistent as money invested in debt mutual fund schemes earns interest till the time the whole amount is fully transferred to an equity fund.
On the other hand, SIPs helps you in saving regularly and provides you with long term capital gains. You are not required to shell out a lump sum amount from your pocket thus aiding in the proper management of your priorities instead of making a hole in your pocket.