Systematic Transfer Plan (STP)
An STP is a plan that allows investors to give consent to a mutual fund to periodically
transfer a certain amount / switch (redeem) certain units from one scheme and invest
in another scheme of the same mutual fund house. Thus at regular intervals an amount/number
of units you choose is transferred from one mutual fund scheme to another of your
choice. This facility thus helps in deploying funds at regular intervals.
Consistent Returns – Through STP, you can transfer your money to
a target equity fund while you are invested in a debt or liquid fund. Therefore,
you will get the returns of the equity fund you are transferring into and at the
same time remain protected as a part of your investment remains in debt.
Averaging of Cost – Like SIP, in STP too, a fixed amount of money
is invested in the target fund at regular intervals. Since it is similar to
SIP, STP assists in averaging out the cost of investors by purchasing more units
at a lower NAV and vice versa.
Rebalancing Portfolio – STP facilitates in rebalancing the portfolio
by allotting investments from debt to equity or vice versa. If your investment in
debt increases money can be reallocated to equity funds through an STP and if your
investment in equity goes up money can be switched from an equity to a debt fund.
How does a STP work?
The investor needs to select a fund from which the transfer should take place and
a fund to which the transfer is taking place. Transfers can be made daily, weekly,
monthly or quarterly depending upon the STP chosen and the options available with
If an investor chooses to transfer from a liquid fund to an equity fund, the lump
sum is invested in a liquid or a floating short-term plan and is transferred at
regular intervals to a specified equity fund. For example, if one has
50,000 to invest in equities; he can put the entire amount in a liquid plan and
go for a monthly SIP of
5,000 in an equity plan through an STP.
STPs can carry Exit Loads as per the respective schemes of the AMC.
Types of STP
A Systematic Transfer Plan is of three types; Fixed STP, Capital Appreciation STP
and Flexi STP.
Fixed STP – In Fixed STP, the investor takes out a fixed sum of
money from one investment to another.
Capital Appreciation STP – In Capital Appreciation STP, the investor
takes the profit part out of one investment and invests in the other.
Flexi STP – In Flexi STP, the investor has a choice to transfer
a variable amount. The fixed amount will be the minimum amount and the variable
amount depends upon the volatility in the market.
Thus, STP is particularly suitable to investors who have lump sum money and wish
to invest in equity funds but are wary of timing the market. They can then choose
to park the lump sum money in a liquid or debt fund and use the STP option to systematically
transfer a fixed amount of money at regular intervals into the target equity fund.