What is a Systematic Transfer Plan or STP?<\/em><\/strong><\/p>\n\n\n\n STP (like SIP) is a mode of investing in mutual funds, wherein you gradually shift your investments from one mutual fund scheme to another within the same fund house (typically from a liquid or a debt fund into an equity fund) over a period of time, called the STP tenure (which could be 6 months, 1 year, 2 years, etc.), by making systematic transfers at a regular frequency (weekly, monthly, quarterly, etc) over the STP tenure.<\/p>\n\n\n\n The scheme from where you wish to transfer is called the source scheme or transferor and the latter is referred to as the transferee or target scheme.<\/p>\n\n\n\n STP is a useful mode and serves to be an investment strategy for both, seasoned investors and starters. It inculcates the discipline of staying invested, at the same time being strategic in the approach (for portfolio rebalancing).<\/p>\n\n\n\n When opting for STP in mutual funds, here are some factors to consider…<\/strong><\/p>\n\n\n\n As a thoughtful investor, consider your…<\/p>\n\n\n\n Doing so shall help in choosing the source and transferee\/target scheme wisely rather than arbitrarily. It may also make sure that the STP tenure is reasonable, particularly when you are deploying money from a low-risk fund to a high-risk fund.<\/p>\n\n\n\n The various STP options available with fund houses are:<\/strong><\/p>\n\n\n\n 1. Fixed STP –<\/strong> In this one, the total amount to be transferred and the frequency remains fixed. The Investor can decide the amount and period of transfer as per his\/her financial goals and time-to-goal.<\/p>\n\n\n\n 2. Flexible STP –<\/strong> As the name suggests, here the investor has the flexibility to transfer funds flexibly as deemed fit. Depending upon the market volatility, one could flexibly transfer a higher share of the source scheme or vice versa.<\/p>\n\n\n\n For example, now since the Indian equity markets are near their lifetime high and valuations are a bit expensive (and the margin of safety is narrow), to mitigate the risk involved, first a lump sum could be transferred to a Liquid Fund and from it, smaller systematic variable transfers may be made into some of the worthy and suitable equity mutual funds. This could enable handling volatility with the rupee-cost average facilitated by STP (as by making systematic transfers to the equity fund the risk is reduced vis-a-vis investing a lump sum).<\/p>\n\n\n\n But going forward, if the markets move sideways, the rupee-cost averaging feature of STP may not drive many benefits. If the market corrects significantly for any reason, then it may make sense to transfer more from the Liquid Fund<\/a>.<\/p>\n\n\n\n 3. Capital Appreciation STP –<\/strong> Here, only the capital appreciation amount or gains are transferred to another fund of your choice. The capital in the source scheme remains intact. Investors wanting to withdraw and transfer only the capital from the source scheme to another scheme (the transferee scheme) this a meaningful option. This particularly makes sense to transfer\/switch the capital appreciation from an equity mutual fund to a Liquid Fund (or any other suitable debt fund) to preserve the wealth generated.<\/p>\n\n\n\n 4. Swing STP –<\/strong> Under this type of STP option, the investor is allowed to pre-set the exposure in the respective schemes based on the target market value. The transfer\/swing takes place based on the target market value set, which could be more or less than the investment meant to be in the target scheme on the respective transfer date. The funds are transferred\/swung between the schemes based on the actual market value and intended investment value. The objective here is to maintain the target market value in the respective funds. For example, if the market value of the equity fund is greater than what is meant to be (from an asset allocation<\/a> standpoint), a transfer takes place to a Liquid (called a reverse transfer) and vice versa.<\/p>\n\n\n\n The key benefits of STP are as under:<\/p>\n\n\n\n STP particularly helps tactically move from one category of fund (debt or equity) to another, which helps spread your investment risk.<\/p>\n\n\n\n Note, debt funds<\/a> are ideal for wealth preservation, while equity funds<\/a> are suitable for investors looking for capital appreciation. Investors should ideally make it a point to invest as per their asset allocation.<\/p>\n\n\n\n STPs from one type of mutual fund scheme to another, serve the purpose of portfolio rebalancing, maintain asset allocation, and helps achieve the investment objective by staying invested.<\/p>\n\n\n\n Before opting in, consider using the STP Calculator<\/strong><\/p>\n\n\n\n Using the STP calculator provides insight as to how the money would be transferred to another scheme within the fund house, and how the equity fund portion and the debt\/liquid portion will grow.<\/p>\n\n\n\n All you got to do is enter the investible amount, the STP tenure, and expected growth from the Equity Fund and the Liquid Fund prudently to get the answer in a few seconds.<\/p>\n\n\n\n Based on the return expectation you enter in the online calculator, it gives you the return you can make from the Liquid Fund, and the Equity Fund, and tells you indicatively the future value of your investment.<\/p>\n\n\n\n![\"\"](\"https:\/\/data.personalfn.com\/images\/The-key-benefits-of-STP-are-as-under.jpg\")
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