Understanding Systematic Transfer Plan (STP)

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Many people have come across the term Systematic Investment Plan (SIP), in fact many people would be knowing it. But there are a few who would not have seen the term of Systematic Transfer Plan (STP).

STP provides you facility to transfer small amount of investment from one scheme to another. This transfer could be made regularly as there are options varying from weekly, monthly or quarterly systematic transfer plans, as per your needs.

Some fund houses have launched schemes where they allow you to transfer the capital appreciation part into another scheme. Under this, the mutual fund will reduce the number of units equal to the amount that you have instructed the AMC to change from one scheme to the other.

Advantages of STP:

More exposure: Risk averse investors who have invested in debt schemes can get step by step exposure to equity schemes by transferring some of their units to equity linked schemes. This helps in spreading funds at regular intervals in equities with minimal risk. Same way investors can reduce their exposure to equity over a period of time and can enter into debt funds.

Time-saving: Instead of selling equity mutual funds units first and then waiting for sale proceeds before re-investing into any other scheme, STP provides you smooth transfer of your funds from one scheme to another of the same fund house. Its saves you time and reduces the cost due on transaction front.

Costs attached:

Exit Load: Investors have to bear an applicable exit load if they choose the option of STP which differs from fund house to fund house.

Taxation: Transfer of units from one scheme to another is considered as sale of units. Investors must have to pay tax applicable, so investors must keep post-tax returns in mind before they go for STP.

OneIndia Money

Read more about: investment, mutual funds, tax, equity
Story first published: Thursday, May 26, 2011, 12:41 [IST]
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