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What Is Systematic Transfer Plan? How It Works?


Systematic transfer plan is a type of SIP or systematic investment that enables investors to take a switch from one scheme to another at regular or periodic intervals of time of the same fund house or asset management company (AMC).

What Is Systematic Transfer Plan? How It Works?

The STP route is more so favourable for lump sum investments, when investor with no other option left has to make a lump sum investment in mutual funds or ETFs and that is highly risky. So, order to lessen the risk factor, AMCs extend the STP facility, using which investors can park or transfer amount from one scheme to the other.

Illustration to understand STP:
Say a person who intends to park a lump sum amount of say Rs. 50 lakhs can invest the same in money market and decide on any amount that can be invested into equity scheme of the same fund house for both improving on the return, mitigating risk and volatility and even reduce on cost.

Here the STP has also to be defined say for how many years or months do you intend this STP to be carried out.

Type of STP:

Then considering the quantum of money or the component you are involving in the transfer there are three STP types:
1. Capital Appreciation: In which the earnings realized from an investment are transferred.
2. Fixed STP: A pre-decided fixed amount is transferred
3. Variable STP: A variable amount can be transferred in such an STP.

How strategy of STP helps the investor?

This can facilitate investors both during the bull run as through regular transfer of funds may be in the equity scheme, investor may not get caught at a very high NAV and over the course of the STP will average or lower out the cost of investment.


Likewise, when the person is close to his or her investment goals say his targeted goal in terms of quantum or say he is well close to the age that he chose for his sunset years to begin, he or she could get a little wiser with his or her investment and park most of the principal and returns that he have accumulated over the year to debt instrument to prevent any major downside in his or her investment.
Now for you starting with your lump sum debt investment, you can take on short duration fund or arbitrage fund but what is more important that you choose the period of investment over which you wish to spread your investment with due diligence.

Read more about: mutual fund mutual funds stp
Story first published: Tuesday, September 14, 2021, 13:49 [IST]
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