The market conditions never remain the same and hence products suited for one stage of the cycle of the markets will never be suitable for the other stage. Professionals or investors with knowledge keep switching between the type of investments made.

Generally when the markets are volatile and are falling to low levels investors tend to take either of the extremes; either they invest fully, the amount that they wanted to invest or stay away from the markets for long enough. The risk associated with both the extremes is high. If the markets continue to do badly, the investor could loose a big chink of the investment, whereas if the investor chooses to stay away, they may keep waiting for the correction to invest on low levels which may never happen.

What is STP( Systematic Transfer Plan)?

Similarly to SIP, STP is a technique where the investor invests lumpsum in a less risky product and systematically transfers a small amount after every decided interval to a more risky product to overcome the risk of investing in a riskier product in one go. There by he gets the benefit or staying invested in the markets and also reduces the risk of loosing a big chunk by investing in parts in the riskier product.

How STP works

When the markets are highly volatile or do not perform well investor try to go for safe instruments and prefer making investments in debt funds, liquid funds, fixed monthly plans etc. These funds are low on risk and offer better returns than keeping money in banks. The investor then chose equity funds which are more riskier but offer good returns when the markets perform to their advantage. They then decide a particular amount which gets withdrawn from the debt fund at regular intervals and is invested in the equity fund as SIP.