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What Is the Difference Between SIP and STP

Knowing the subtle differences between different investing methods is essential in the finance industry. SIP and STP are two of these tactics that are often discussed. Even though they both include systematic investments, they have different functions and behave differently in a portfolio of investors. In order to properly understand the difference between SIP and STP, it is necessary to examine them.

Understanding SIP and STP

It is important to know what is SIP and what is STP to understand their differences. The subsequent sections will illustrate the meaning and possibilities.

Systematic Investment Plan 

It is a disciplined method of investing in mutual funds. SIP full form, is a Systematic Investment Plan.  It enables investors to consistently make set contributions to the mutual fund scheme of their choice. These payments may be made on a monthly or quarterly. They can also be made on other prearranged basis. SIPs use the power of compounding to allow investors to amass wealth over time progressively.

SIPs are liked because of their easy approach and accessibility. The rupee-cost averaging allows investors to start with comparatively small amounts. It then minimises the impact of market volatility on their investments. By promoting consistent savings and investing, SIPs foster financial discipline.

The SIP amount is automatically deducted from your bank account and invested in the mutual funds you have chosen. This occurs at previously arranged periods. Ultimately, units of mutual funds will be assigned to you based on the mutual fund’s net asset value (NAV). Frequent contributions over a longer period enable the generated profits as well as the initial investment to increase in value.

Systematic Transfer Plan

STP full form is a Systematic Transfer Plan. It is the scheduled transfer of a predetermined amount from one mutual fund scheme to another. STP aims to reduce risk and increase returns by deliberately redistributing funds among several investment strategies or asset classes. Investors may keep their portfolios balanced without always requiring manual intervention with STP. An investor may decide to routinely move money from a debt fund to an equity fund. As a result, they can take advantage of market opportunities and guarantee a smooth transition between asset classes.

Examining the differences between SIP and STP

The key differences are outlined and explained in the following parts for better comprehension. 


The main goal of SIPs is long-term wealth accumulation. They promote disciplined investing by enabling investors to consistently contribute a set amount to a particular mutual fund scheme. SIPs’ primary goal is to use compound interest to progressively build wealth over time to achieve long-term financial objectives like saving for retirement, covering college costs, or purchasing a home.

On the other hand, STPs prioritise risk management and return optimisation through strategic asset allocation. Systematic transfers of funds between mutual fund schemes at regular periods are the aim of STPs. Redistributing money among several asset classes or investment strategies by market conditions and investment goals enables investors to take advantage of market opportunities and reduce risks.

Operation technique

SIPs entail recurring fixed-amount investments into a single mutual fund programme. To set up a Systematic Investment Portfolio (SIP), investors must give their bank or mutual fund permission to take a predefined amount each month, quarter, or year out of their bank account. Following the investor’s instructions, the deposited amount is distributed to the selected mutual fund scheme.

STPs involve methodically moving money between mutual fund schemes. By indicating the amount to be transmitted and the frequency of transfers, investors start STPs. According to a predetermined schedule or trigger circumstances specified by the investor, money is moved from the source scheme, like a debit fund, to the destination scheme, like an equity fund.

Risk handling

SIPs do not come with built-in risk management techniques. But they do have the benefit of rupee-cost averaging. This reduces the effect of market changes on investments. SIPs allow investors to acquire more units during periods of low price and fewer units during periods of high price. It is accomplished by setting up a fixed amount to be invested regularly. This can eventually lower the average cost per unit.

Based on market conditions and investment goals, STPs are intended to manage risks by redistributing funds among various asset classes or investment strategies. For instance, if investors believe that stocks will provide better long-term returns than debt funds, they might progressively utilise STPs to move money from the latter to the former. This enables investors to keep their portfolios balanced and reduce the risks involved.

Investment range

Investors with a long-term investment plan should consider SIPs. They are made to use compound interest to amass money over time progressively. Regular investments through SIPs allow investors to benefit from long-term investment development, which makes them perfect for reaching long-term financial objectives like asset creation or retirement planning.

STPs support long-term and short-term investment plans by providing flexibility regarding the investment term. STPs are appropriate for long-term investors seeking to maximise returns through strategic asset allocation, even if they can be utilised for short-term objectives like income creation or capital preservation. Through systematic fund transfers across several mutual fund schemes, investors can modify their investment strategies in response to shifting market conditions and investment goals.

How to choose the right strategy

Given the differences and overlying elements, it can be difficult to pick between stp vs sip. The following factors can be considered for better judgment.

  • Investment goals: SIPs can be a better option if accumulating money over the long term is your main goal. However, STP can be better if your goal is to maximise profits through strategic asset allocation.
  • Risk handling capacity: Consider the degree of risk involved in each investment opportunity as well as your risk tolerance. STP enables dynamic asset allocation to effectively control risks, although SIPs’ consistent investment technique may make them less volatile.
  • Time horizon: Take into account how long you plan to stay engaged as well as your investment horizon. STP provides flexibility for both short-term and long-term investing plans. SIPs are best suited for long-term investors.


Although both SIP and STP are systematic investment programmes, their functions and target audiences are different.  Making wise investing decisions that fit your risk tolerance and financial objectives requires knowing the distinctions between STP and SIP. Adopting the appropriate investing strategy can open up a world of options and lead to financial freedom in the world of money. Choosing SIP, STP, or a mix of the two is not as important as remaining knowledgeable, self-disciplined, and goal-oriented over the long run.


Is SIP preferable to STP?

SIP is generally utilised by those who want to reach a particular investing objective. STP, on the other hand, is more advantageous for investors with substantial excess funds in their accounts.

Does STP have an expense?

If capital gains are realised, each transfer made under the systematic transfer plan is eligible for a tax deduction.

Which five SIP kinds are there?

Investing in SIPs can be done through about five main types. These are trigger, perpetual, flexible, top-up, and regular.

What are SIP and STP?

These are two ways to approach systematic investing and withdrawal. The full forms are systematic investment plans for SIP and systematic transfer plans for STP. Each has a distinct function.

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