SIPs and STPs Demystified

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Dear Friends,

                       Id Mubarak! I presume you would have heard the Financial Jargon “Systematic Investment Plan” of SIP. SIP refers to investing a fixed sum of money on a periodic basis over a long duration. A Bank Recurring Deposit is in a way SIP. It inculcates a regular savings habit in us. But the power of SIPs can be appreciated only when you invest in Equity where there is a fluctuation and the value of underlying assets are volatile. Ie. Increases and Decreases and does not move unidirectional like Band RDs.

 When is comes to Equity investing, SIPs provide multiple advantages over and above the discipline of regular investing:

  1.  Rupee-Cost Averaging – Buying more when the market is lower and less when the market is higher thereby reducing the average price per unit in long term.
  2. Control the greed – Based on past investment pattern, people typically try to invest more when the market is moving up and reduce or stop when the market tanks.
  3. Achieve a financial Goal. If you want to save for your dream home which costs 1 crore, 10 years from now, then you need to save about 27k per month assuming that the equity market returns 20% during this time. If you assume a more conservative return of 15%, then you need to save about 36.5k per month to reach the same 1Cr in 10 years’ time.
  4. Doing it effortlessly – You don’t need to write cheques on a regular basis or move money from one account to another – Just a single cheque will do to set up an auto debit from your Bank Account and that’s it.
  5. Power of Compounding – No wonder Albert Einstein once noted that “The most powerful force in the universe was the principle of compounding”


This is why Financial Pundits across the globe recommend SIPs and regard it as one of the most simple and powerful wealth building tools.

 The only thing that you have to ensure is that the hard earned money is invested in the right fund.

 A real example of how SIP has worked wonders can be Illustrated from one of Prashant Jains Funds – HDFC Equity Fund (Please refer to my blog dated 16th July where I had written about my meeting with Prashant – )

 If you’ve invested Rs.10,000 per month in HDFC Equity Fund for the last 10 years (as on 30th Jun 2014), you would be sitting on a sum of Rs.34 lakhs! The amount invested by you would be Rs.12 lakhs over a 10 year period resulting in this sum giving an annualized return of approx. 20%

 If you’ve invested Rs.10,000 per month in this fund for the last 15 years (as on 30th June 2014), you would be sitting on a sum of Rs. 1.49 Crores! The amount invested by you would be Rs.18 lakhs over a 15 year period resulting in this sum giving an annualized return of approx. 25%


Monthly Investment Tenure Total Investment Sum Accumulated ROI
₹ 10,000 10 Years ₹ 12,00,000 ₹ 34,00,000 19.79%
₹ 10,000 15 years ₹ 18,00,000 ₹ 149,00,000 25.01%
₹ 10,000 19.5 years* ₹ 23,40,000 ₹ 457,00,000 25.76%


* Since Inception of HDFC Equity Fund

 It is not that only HDFC Equity Fund can deliver or has delivered this kind of returns but any pedigree fund would be able to deliver returns of this order plus or minus a few percentage points. Following are some of the funds that have delivered stupendous performance and generated wealth for investors over long term:

  1. Birla SunLife Frontline Equity
  2. DSP BlackRock Top 100 Equity
  3. Franklin Prima Plus
  4. Franklin Blue Chip
  5. HDFC Top 200
  6. HDFC Growth
  7. ICICI Prudential Dynamic Fund
  8. SBI Magnum Multiplier
  9. SBI Contra Fund
  10. Sundaram Select Mid-Cap


Systematic Transfer Plans

Systematic transfer plan or STP is a variant of SIP whereby instead of investing money from your Bank A/c on a periodic basis into a Fund, you park a lump sum amount in one of the liquid or short term funds and transfer the amount from this to the fund of choice where the investment is made.

STPs come in handy when you want to park surplus amount in Liquid or Short term funds which typically gives over 8% returns when compared to 4% Saving Interest in Banks (or 6% in some like Kotak or Yes Bank).

Bonus earnings, stock option sale, gifts from relatives and friends, matured investments are typical scenarios when you can opt for STPs.

I typically recommend clients to maintain a threshold in Bank Savings A/c and any amount over and above this can be invested in Liquid and Short Term Funds to earn the additional return of 4 to 5%. The process is very simple and can be done by you online.

 What are the key takeaways?

  • Periodic and disciplined investment across market cycles for long durations, typically 10 years and more generates significant wealth. At PenguWIN, we recommend Equity MF investments for a minimum period of 7 years in the current favourable economic conditions and typically 10 years and more


  • It’s not just 1 or 2 Funds that has been able to generate wealth for investors over longer durations but a significant number of Funds from various fund houses have been able to deliver this. Its PenguWIN’s responsibility of making sure that you are invested in one of the good performing funds. Our ability to closely track the Mutual Fund Universe and Investment Acumen ensures that your hard earned money is well invested and your goals are met.


  • Indian economy is poised to grow at a health average in the years to come and Financial Analysts and Economists across the globe are predicting that this is a “Golden Era” for investors in India like the 80’s for Japan and 90’s onwards for China.


I strongly urge you to make use of the opportunity at hand, start investing early in your life and build a substantial sum to take care of your needs at the later part of your life.

Personally, I have benefited from this and only trying to preach what I have practiced/practicing. At hindsight I tell people that I could have started investing in MFs, 5 years earlier than I actually did and built a larger corpus. Unfortunately there was no one to tell me then and had to figure it out myself 🙂

<Blog # PenguWIN 1007 – SIPs and STPs Demystified>

Category: Mutual Funds
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