SIP+STP Calculator: Rs 20 lakh investment; Rs 1.46 crore retirement corpus in 20 years; how it is possible
SIP+STP Calculator: Instead of investing in a large lump sum amount in an equity fund, investors take the route of Systematic Transfer Plan (STP), where they invest a lump sum amount in a mutual fund scheme and transfer it to SIP investment periodically in the mutual fund scheme(s) of the same fund.
SIP+STP Calculator: What if you have a large amount to invest in equity mutual funds, the market is rising, shares are overpriced, and many stocks are turning multibaggers? Will you go for it? Will you not? It is impossible to time market. A steep market can go steeper, or it can fall sharply. But it is hard to predict. Many investors may avoid taking the risk of a lump sum investment in a rising market. But they may still want to benefit from the market in the long run. What can be the solution to investing a lump sum amount? For such mutual fund investors, systematic investment transfer (STP) can be a way to transfer money from one mutual fund to another fund scheme. In this write-up, know how STP works and how one can convert a Rs 20 lakh lump sum amount into a Rs 1.46 crore corpus in 20 years.
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(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert before financial planning.)
What is STP?
In STP, a lump sum amount is invested in a mutual fund scheme and is transferred periodically into one or more mutual fund schemes of the same mutual fund house. The benefit of investing through STP is that while investors get returns on the STP investment, they also benefit from SIP returns. To save the STP investment from market fluctuations, a lot of investors prefer investing in debt funds or arbitrage funds.
Things to look out for while STP investing
There are mainly two things to remember. While transferring from the STP fund to the SIP fund, a maximum of 2 per cent can be charged as exit fees. However, a transfer from a liquid fund to an equity fund does not attract any exit load. The second factor is taxability. Each STP transfer is subjected to tax deductions, provided capital gains are made. Redemption of the investment from STP mutual funds before 3 years makes the gains deductible at 20 per cent under short term gains.
Benefits of STP
Since the investor gets returns from STP and SIP, the overall returns can be higher than the investment from investing in either of them. Parking money in a debt fund or arbitrage fund can save an investor's lump sum amount from market fluctuations.
Calculations
For our calculation, we will take the example of a Rs 20 lakh lump sum amount. We put that money in a liquid fund.
Rate of return from STP fund
We expect 6 per cent annualised returns from the STP amount.
Returns from SIP investment
We expect 12 per cent annualised SIP returns from the transferred amount.
Investment duration
The investment period will be 20 years.
What will be monthly SIP investment?
The estimated monthly SIP investment in this way will be Rs 8,333, or Rs 1 lakh in a year.
Returns from liquid fund
The estimated returns from the liquid fund in 20 years will be Rs 82,52,449.
Returns from equity fund
The estimated equity fund returns are Rs 63,76,338.
Future value of Rs 20 lakh investment
Adding returns from the liquid fund investment and the SIP fund investment is Rs 1,46,28,788.