STP or lump sum? Four real tests from 2025 and 2026

The setup

A Systematic Transfer Plan (STP) parks a lump sum in a debt fund and moves it into an equity fund in instalments. Our STP guide explains the mechanics. This post asks the practical question: over the last eighteen months, would it actually have helped?

The test uses two real funds from one fund house, as an STP requires: HDFC Liquid Fund as the parking place and HDFC Nifty 50 Index Fund as the destination, both Direct-plan Growth. Each test puts ₹6 lakh into the liquid fund and moves an equal share into the index fund on the first business day of each month. The last transfer sweeps whatever is left, including the interest earned. Everything is valued on 1 October 2026 at that day's NAV.

Test 1: from 1 January 2026, six months

The lump sum bought everything at 254.04, close to the Nifty 50's high of early January. The STP kept buying as prices fell and caught the April low at 220.50. It still lost money, because the index fund ended at 219.45, below every price it paid. But it lost less than half as much.

Test 2: from 1 April 2025, six months

Here the order flips. The lump sum bought at 223.25. The market then rose, and the STP's later transfers paid 234.62, 238.63, 247.18, 238.17 and 239.06. Spreading the money out meant buying higher, and the STP finished ₹25,597 behind.

Tests 3 and 4: from 1 October 2025, six months or twelve

Same start date, same funds, opposite answers. The six-month STP bought through the rise into January and finished its transfers in March, just before April's fall. It ended ₹7,283 behind the lump sum. The twelve-month STP was still buying in April and May, and ended ₹19,720 ahead.

What the four tests show

An STP wins when prices fall during the transfer window, and loses when they rise. That is all it does. It does not raise the expected return; it changes which prices you pay. Test 1 and Test 4 caught a fall; Tests 2 and 3 did not.

The length of the STP is a bet too. Tests 3 and 4 started on the same day and finished on opposite sides of the lump sum, only because one ran six months longer.

What it reliably buys is less regret. In Test 1, the worst outcome, the STP turned an ₹81,693 loss into a ₹35,795 one. Someone who would have abandoned equity after a 13.6% fall in their first nine months might stay invested after a 6% one. That behaviour is worth more than the arithmetic.

The parked money earns while it waits. The money still in the liquid fund earned interest the whole time: ₹6 lakh left there from 1 January earned 4.93% in nine months. That is the STP's edge over keeping the cash in a savings account while you decide.

Before you set one up

• Each transfer is a redemption. The gain on the liquid fund units sold is taxed at your slab rate, so a twelve-month STP means twelve small taxable events. Our post on why switching funds is taxable covers it.
• Check the source fund's exit load. Liquid funds charge a small one only on money withdrawn within six days of investing; other debt funds may charge for longer.
• Model your own numbers. The STP calculator models a transfer schedule, and the lump sum calculator does the other side.

These are four windows in one market. They show the trade-off, not which choice will be right next time.