Everything you need to know about STP (Systematic Transfer Plan)

Systematic transfer plan

Everything you need to know about STP (Systematic Transfer Plan)

We all have heard so much about SIPs, but are you aware that there is other similar disciplined ways of money management in mutual funds? , Yes we are talking about STP. In this blog let us discuss STP (Systematic transfer plan).

What is STP?

Systematic transfer plan is a plan which enables investor to transfer a fixed/variable amount of money from one mutual fund (Source) to another (target)in a predetermined intervals such as weekly, monthly, quarterly, yearly etc., In a nutshell STP is nothing but an SIP but source of fund is not a bank account instead its an another mutual fund account. In general STP is used to transfer from debt mutual funds to equity mutual funds or vice versa depending on market performance and asset allocation strategy.

For an example let us assume I have ₹10,00,000 to invest and I feel equity markets are overpriced at current levels. Hence I invest my money in a ultra short-term debt fund and start an STP of ₹5000 per month to a diversified equity mutual fund.

Types of STP:

Fixed STP

In Fixed STP investor transfers a fixed amount from one mutual fund to another.

Flexible STP

In Flexible STP the STP amount has 2 components one is fixed component where that amount would be transferred for sure and the other one is variable component which will be transferred based on market conditions, it could be PE bases (eg IDFC MF) or some formula based.

Capital Protection STP

In Capital appreciation STP only the profits from the source mutual fund scheme will be transferred on a monthly basis to the new scheme (target).

Where should you use STP?

1. You have invested in equity mutual funds and you feel market would undergo correction, in that case you can initiate an STP to minimize your downside risk.
2. You have a predefined asset allocation strategy based on your goals and due to markets uptick your portfolio is not balanced as per initial plan. Hence STP can be used for rebalancing of your portfolio.
3. You have lump sum amount to invest but hesitate to invest them completely in equity, so you could invest in a debt fund and start an STP to get the benefit of rupee cost averaging.
4. Also if your goals are near and you have accumulated enough for goal, you can initiate an STP from equities to debit for protecting your corpus using STP.

Start an STP on WealthTrust app now.

New to Mutual Funds? Learn more about basics of mutual funds

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