How it works
Suppose you have a lump sum of ₹6 lakh and want to put it into an equity fund but are worried about buying all at once. You invest it in a liquid or short-duration debt fund of the same AMC and set an STP of ₹1 lakh a month into an equity fund for six months. Each month the AMC redeems ₹1 lakh from the debt fund and buys units in the equity fund at that day's NAV. The unspent balance keeps earning debt-fund returns while it waits.
Types
- Fixed STP: the same amount each time.
- Capital appreciation STP: only the gains in the source fund are transferred.
- Flexi STP: the amount varies with a rule you set, for example, more when the market has fallen.
STP vs SIP
| SIP | STP | |
|---|---|---|
| Money comes from | Your bank account | A fund you already hold |
| Used when | You earn monthly | You have a lump sum |
| Result | Builds a position over time | Moves an existing position over time |
What STP does and does not do
- It spreads your entry into a risky fund over months, so you are not hurt if the market falls right after you invest. That is a timing-regret tool.
- It does not make the investment safer in expectation. If the market rises through those six months, the lump sum would have done better.
- The part waiting in the source fund is not risk-free: a liquid or short-duration fund can still move slightly.
Tax: every transfer is a redemption
Each STP instalment is treated as a redemption from the source fund and a fresh purchase in the destination. Any gain on the units transferred out is taxed at the source fund's rates, and exit load can apply. In a liquid or debt fund bought after 1 April 2023 the gain is taxed at your slab rate. See capital gains on mutual funds.
When it makes sense
- You received a bonus, sale proceeds or maturity and want to move into equity gradually.
- You are rebalancing from equity to debt as a goal gets close (a reverse STP).
- You want asset allocation shifts without a single large sale.
Which route: lump sum, STP or SIP?
| Situation | Usual route |
|---|---|
| Money comes every month from salary | SIP |
| You have a large amount now and a long horizon, and a fall right after investing would hurt your resolve | STP over 6 to 12 months, or lump sum if you are comfortable with the risk |
| You have a large amount and need a goal funded in under 3 years | Keep it in debt or hybrid funds rather than moving it to equity |
| You are close to a goal and want to cut equity risk | Reverse STP from equity to debt over several months |
There is no rule that says six months or twelve months is correct. A longer STP gives more averaging but leaves more of the money out of equity for longer, which can cost you in a rising market. Choose a period you can stick to.
A tax example
You hold ₹6 lakh in a liquid fund. Over the first month, each ₹1 lakh moved out carries a small gain, say ₹300. That ₹300 is taxed at your slab rate (30% slab: about ₹94 with cess) because liquid funds bought after 1 April 2023 are specified mutual funds. Over six transfers the total tax on the waiting money is modest, but it is not nil. If the source fund were an equity fund, the transfer would follow equity capital-gains rules instead.
Questions people ask
What is STP in mutual funds?
A plan to move money from one scheme to another at regular intervals.
Is STP better than a lump sum?
It reduces timing regret; it does not raise expected returns.
Is STP taxable?
Yes. Every transfer is a redemption for tax purposes.
Can I do an STP between different fund houses?
No, usually within the same AMC.
What is the difference between STP and SIP?
SIP draws from your bank; STP draws from a fund.
Keep going
Run the numbers
Lumpsum calculator
Related terms
Read next
How we can help
Sources
- AMC STP facility documents
- ICICI Prudential AMC Tax Reckoner 2025-26.
Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. This page is general education, not personal advice. Back to the full glossary