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Can I invest in SBI Equity Hybrid Fund to start an STP?

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ET Online|
Dec 04, 2019, 04.05 PM IST
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I have Rs 20 lakh with me. I would like to invest it through STP. Is it a good idea to invest the money in SBI Equity Hybrid Fund and use the STP route to invest the money regularly in SBI Small Cap Fund? Please advise.
--Anil Kumar

Most investment experts ask investors to park the money in schemes with very low volatility to start an STP or Systematic Transfer Plan. That is why most of them ask investors to park money in a liquid or ultra short duration scheme to start an STP. Some advisors have also started recommending arbitrage funds for the tax benefits. Arbitrage funds are treated as equity schemes for taxation. If you sell your investments before a year, you would only pay 15% tax. If you sell your debt mutual funds before three years, the returns would be added to your income and taxed according the income tax slab applicable to you.

Aggressive hybrid schemes like SBI Equity Hybrid Fund invests 65-80% of the corpus in equity. Such schemes cannot be treated as a low-volatility product. When you are investing in an aggressive hybrid scheme and use the STP route to invest the money regularly in another scheme in a few months, there are chances of short-term losses if the equity market gets into a rough phase. That is why it is not a great strategy to invest in aggressive hybrid schemes to start STPs.

Also Read

Should I start an STP to invest in SBI Small Cap Fund?

Should I invest a lumpsum or do an STP?

Lumpsum vs STP: which option would give maximum returns?

Can I do an STP for five years in a smallcap scheme?

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