Why STPs work well in volatile markets: Girish Lathkar of Upwisery Private Wealth explains

In a world where markets swing between dizzying highs and nerve-racking lows, seasoned investors understand the value of strategic discipline and thoughtful planning. Girish Lathkar, partner and co-founder of Upwisery Private Wealth, brings a wealth of experience to this discussion. In an insightful conversation with Fortune India, Lathkar sheds light on how investors can go through the current phase of market uncertainty, especially after the recent rally, by leveraging tools like the Systematic Transfer Plan (STP).

As global growth outlooks remain unpredictable, Lathkar unpacks why STPs—structured, phased investment mechanisms—can be a game-changer for those wary of jumping into volatile markets with a lump sum. From generating returns on idle funds to enhancing liquidity and building long-term equity exposure, he explains how STPs can help investors ride out market turbulence while maintaining financial discipline.

Excerpts:

Q. The market has bounced back after the recent crash. Is there still an uncertainty?

A. While markets have rallied in the hope of better tariff-related outcomes, amongst other things, they will eventually chase earnings and growth.  Due to a lot of moving factors, global growth projections are uncertain currently. Hence, it would not be a surprise if markets suddenly turn volatile or just be range-bound.

Q. How useful is an STP during such uncertain times?

A. In uncertain times, STPs work well as one doesn't need to time the markets. It is very difficult to time a bottom and the best thing to do is keep investing during the most volatile period. It allows transfer of a fixed amount periodically from one fund (for example, a liquid fund) to another (such as an equity fund) within the same fund house (AMC).

This mechanism serves two important purposes: one, it ensures disciplined and gradual deployment into equities; two, it keeps the lump sum investment productive, earning returns (approximately 5.5%-6% from the liquid or arbitrage fund) even before full deployment.

In short, an STP allows to reduce the risk associated with lump sum investment when the markets are volatile, while at the same time, the idle money also generates income being in a liquid or arbitrage fund from where the STP is carried out. However, investors should be mindful of the following during fund selection:

· Short-term instruments like liquid funds, overnight funds, and ultra short funds offer high liquidity (T+1) with nil or low exit loads, thus making them idle products to consider for setting up STP in any other equity fund.

· Arbitrage funds may have minor exit loads if redeemed prematurely and could take slightly longer (T+2) to redeem.

An STP can, thus, instil a disciplined investment practice and allow investors to weather market fluctuations more comfortably while gradually building market exposure.

A suitable combination of short-term parking tools like liquid funds, overnight funds, ultra short duration funds, and arbitrage funds, with phased deployments through STPs, can help investors with stable returns and use the opportunity with enough liquidity at hand. An appropriate deployment period and the right asset allocation can be the driving force in creating an all-weather portfolio to attain financial goals.

Q. An STP works out only when there is lump sum investment. How can it reduce the risk associated with lump sum investments in volatile markets?

A. Most investors are usually unsure about entering markets when they turn volatile, which ironically might be a better time to invest. In such situations, STPs come in handy as they let investors participate and enter markets in a phased manner. They can always switch larger amounts by closing the STP without any penalties.

Q. How can STP help with required liquidity when the opportunities arise? Can there be a way to get the idle money to generate a return before the STP is carried out?

A. Both short-term debt funds and arbitrage funds offer the option to set up STPs. An STP typically is a pre-determined switch scheduled from a liquid/arbitrage fund. The underlying fund keeps generating liquid/liquid plus return. It also helps immensely in case of a very sharp correction over a few days as one can simply switch from the liquid fund (T+1) instead of going through the hassle of doing a fresh transaction, especially in case of large amounts involved.

The only thing to keep in mind while arranging an STP is that it can be done with the same fund house. Both (liquid or arbitrage fund) and the other equity funds should be from the same AMC.