STP — bridging lumpsum to equity gradually

An STP (Systematic Transfer Plan) is the structured way to deploy a lumpsum into equity over time. You park the corpus in a debt or liquid fund and instruct the AMC to transfer a fixed amount every month (or week) into a target equity fund within the same AMC.

Why STP vs cash + SIP

Imagine you have ₹12 lakh to invest. Two paths:

• Cash + SIP: leave ₹11 lakh in your savings account, run a ₹1 lakh SIP for 12 months. The unused portion earns 2.5-4% in the savings account.
• STP from liquid: put all ₹12 lakh in a liquid fund, set up an STP of ₹1 lakh/month into an equity fund. The unused portion earns 6-7% in the liquid fund.

For most of the 12-month window the STP path has more capital working at a higher rate — meaningful at this scale.

The mechanic

Most AMCs support fixed-amount, fixed-units, or capital-appreciation STPs. Fixed-amount (₹1 lakh / month) is the most common. The source and target funds must be schemes of the same AMC; cross-AMC STPs aren't supported directly.

Tax treatment

Each STP instalment is a switch — a redemption of the source fund's units. Capital gains tax applies:

• If the source is a liquid fund (debt), the unit-level gain on each switch-out is taxable at slab rate (post-Apr-2023 debt rules).
• The target equity fund's holding-period clock starts at each switch-in date.
• Stamp duty (0.005%) is deducted on each switch-in.

Typical durations

6 months for "I want to be invested soon", 12-18 months for "I want valuations smoothed out". Beyond 18 months the smoothing benefit is small and the cash drag on the un-deployed portion grows.