To lump sum or to STP is the question?

When markets are close to new highs a lot of investors ask the same question – should we STP or lumpsum now?



I have some money in my bank account, should I invest it as a lumpsum or buy a liquid fund and setup a Systematic Transfer Plan (STP) into an equity fund over a year. A 1 Year STP will move 1/12th of your liquid fund units to the equity fund every month. 



Over time two narratives have emerged:

1/ STP – why take the risk of investing at highs? The market will likely mean revert so averaging your buy price over a year is the way to go.

2/ Lumpsum – time in the market is all that matters. Since we cannot predict what the market will do (can go higher or lower), just invest as soon as you have the money.

The advisor community, by and large, has adopted that STP is the way to go.


We ran a backtest to see what historical data suggests.


We start with NIFTY index data going back to 1994. Over the past 24 years, the market has made a new all-time high in 48 months. In each of those months we set up two investments:

1/ Invest in a liquid fund and then STP into NIFTY over 1 year

2/ Invest in NIFTY


After 1 year we see which investment did better.


Times Outperformed Avg 1 Year Return
STP 19 8.7%
Lumpsum 29 12.0%
Total Instance 48


Of the 48 instances when we set up the STP vs Lumpsum race, lumpsum investment outperformed 60% of times. More importantly, investing in a lump sum in all 48 instances would have returned on average 12%, while a 1 year STP returned on average 8.7% after one year.




Lumpsum investing has outperformed STP even when market are making new highs. Lumpsum investments are likely to work out better 60% of times and with higher expected returns. 



The intuition behind the data


The STP or lumpsum debate eventually is one of market timing. Doing an STP implicitly assumes that you can time a market high – it is the only scenario that justifies doing an STP over a lump sum. If you do not think you can time market highs, then don’t STP.

How is STP a claim of market timing ability? Well, think about it.

STP will work only when the average NAV over the next 12 months is lower than today’s NAV so that you can accumulate more units than you would by buying all of it today. So an STP investor is making a complex claim that NAV will be on average lower over the next 12 months while I am accumulating units and then it will go up after.

Lumpsum, on the other hand, makes no market timing assumptions – it is the simpler option.

The narrative that data is telling us is similar:



Advisors recommend STP at market peak assuming that markets will correct. Future though is unpredictable and markets don’t correct as often as expected. Investor accumulates higher NAV through STP. Thus, investor STP returns are lower than Fund returns!



And what does international evidence says


We ran the same analysis on S&P500 (from 1950) and NASDAQ (from 1971) and the results are the same. Lump-sum outperforms roughly 3 out of 5 times and also on average has 2-3% higher 1-year returns.


So, next time someone asks – to lumpsum or to STP, remember the data says to “lumpsum”.


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This market update was initially published by CNBCTV18 in the Personal Finance section.

22 Responses

  • Neoanderson

    August 1, 2018 AT 12:11

    Dear Gaurav, Would it be possible share the data with full details? Is this conclusion will be true, even if the SIP started during the volatile market such as the year 2008? did the out performance by lumpsum is purely based on long term or when would be the break even between these two options.
    FYI, I am a beginner in this field. Thanks for this article.

    • Gaurav Rastogi

      November 12, 2018 AT 06:55

      Our date includes volatile periods as well. It is hard to predict break points as it would require the ability to time the market.


      November 18, 2020 AT 16:58

      Thank you for suggestion. Can i get your advice for lumpsum investment. Please respond through email. Please.

  • Vivek

    October 14, 2018 AT 23:49

    This is the first article I found in India, where Lumpsum investment are credited with higher returns. Your article and language is succinct. At all other places, I found people favoring(even blindly at times) STP over lumpsum.

    Since I’m already invested in Lumpsum, I was speculating if I should revert back to STP. Doing that will not only incur exit load, but also crystallize my losses since I won’t be in the game anymore and when I enter again with STP, it will be a new ball game. I feel that the losses(about 10%, at the moment) that I am taking when exiting would not get justice which otherwise might recover if i stay put for next 6 years.

    thank you

  • Ketan Karia

    September 14, 2019 AT 09:14

    Dear Gaurav, This is eye opener and very interesting insight, however just one query, did calculation of 1 year AVg return considered return from Liquid fund as well along with equity where it have been transferred to ?

    • Gaurav Rastogi

      September 14, 2019 AT 10:42

      Yes, it included a proxy for liquid fund returns too.

  • Meenakshi

    November 18, 2020 AT 02:18

    Great article! One question ! Do you also favour lumpsum over SIP . Which one is better . For example I keep investing in 3-4 funds in my & 3-4 in my husband portfolio which is spread over eight days in a month. Is it better to choose one date for all these funds . I am comfortable with both depending on with is better

    • Gaurav Rastogi

      November 23, 2020 AT 02:56

      Lumpsum and SIP is a cashflow issue. The bottom line that all analysis shows is that you should invest as soon as you have surplus capital. SIP does that as you get paid income every month, which creates some surplus capital and you invest it immediately. If you already have surplus capital in the bank then lumpsum is better.

  • Basavaraj S Patil

    November 21, 2020 AT 12:27

    Say my starting point was Feb 2020 and market crashed in March.

    Feb 2020 to Jan 2021 in this period Lumpsum vs 12 month STP, i believe STP would have given better return. Then how do you claim do STP always. Please correct me if im wrong

    • Basavaraj S Patil

      November 21, 2020 AT 14:36

      Sorry a mistake above. Then how do you claim to do lumpsum always. You mentioned remember data says lumpsum 🙂 please correct me if I’m wrong.

      • Gaurav Rastogi

        November 23, 2020 AT 03:00

        Investing is all about odds of being right. 3/5 odds is good enough for us to always use lumpsum. If you have a better way to time STP and lumpsum without the benefit of hindsight then please use that. We haven’t found one.

        • Basavaraj S Patil

          November 23, 2020 AT 06:51

          You are the expert, I am a lesser mortal to have found a better strategy. Thank you so much for the response Gaurav. 3/5 odds favor lumpsum. Every time you do a study at Kuvera, it throws new light. This one is no exception. Looking ahead for more such studies.

          • Gaurav Rastogi

            November 23, 2020 AT 08:01

            Nothing like that. It’s just what the numbers say time and again that timing the market over a long time frame is hard.

  • Basavaraj S Patil

    December 8, 2020 AT 05:28

    Old adage proved right again 😉 “Time(lumpsum) in the market is important than timing(STP) the market”

  • Sparsh Mittal

    December 11, 2020 AT 19:02

    It is true that lumpsum have better odds but I think we should also consider the fact that if markets do fall after putting lump sum, then our loss will be much higher than the loss due to STP. So isn’t it better to take the safe path and do an STP even if it may lead to less return.

  • Rohan

    April 11, 2021 AT 07:41

    I feel doing STP over a 5-year timeframe would be better than lumpsum. If you see SIP returns, they’re mostly better than lumpsum returns over the same period. Why is that?

  • Harit

    May 27, 2021 AT 00:00

    Gaurav, this was enlightening. What happens the 40% the odds are not in your favor. What are the returns then as compared to STP.

  • Arpit Singhal

    July 28, 2021 AT 19:22

    STP reduces the risk to a great extent. The article is biased in terms of return ignoring the concept of risk vs return. By splitting investments over 12 months, one would significantly reduce the risk of entering the market at peak (though it’s true nobody can time the market).
    Lower STP return holds good on principal of more risk, more return.
    One should evaluate and reach out to balance risk and return basis his requirement/capacity.

  • Vinayak

    January 13, 2022 AT 12:21

    Eye-opening article to give a whole new perspective.
    While it is evident from your data that returns from lumpsum have beaten STP more often than not, do you have data on how much was the downside of the capital in cases where-in lumpsum fared lower than STP? This is just to see how big were the losses when markets tanked after lumpsum investing.