What is Systematic Transfer Plan ( STP ) in Mutual fund?
STP stands for Systematic Transfer Plan in Mutual Funds. It is a facility offered by mutual funds that allows investors to transfer a fixed amount or units of investment from one scheme to another scheme of the same fund house at regular intervals.
Under an STP, investors can choose to transfer funds from one mutual fund scheme to another scheme systematically on a regular basis. For instance, an investor may choose to transfer a fixed amount or a fixed number of units from a debt fund to an equity fund on a monthly or quarterly basis. The amount or units to be transferred can be predetermined by the investor, and the frequency of the transfer can also be selected based on the investor's preference.
STP is useful for investors who want to move their money from one mutual fund scheme to another over a period of time. It helps in managing the risk associated with investing in volatile markets. For example, if an investor has invested a lump sum amount in an equity fund and wants to reduce the risk of market volatility, they can use STP to systematically transfer their investment to a less volatile debt fund.
STP can also be used to take advantage of different market conditions. For instance, if an investor believes that the equity market is undervalued, they can use STP to transfer money from a debt fund to an equity fund, in order to take advantage of potential future growth opportunities.
There are two types of STP:
Fixed STP: In a fixed STP, a fixed amount is transferred from one mutual fund scheme to another. For example, an investor can choose to transfer Rs. 5,000 from a debt fund to an equity fund on a monthly basis.
Capital Appreciation STP: In a capital appreciation STP, a fixed number of units are transferred from one mutual fund scheme to another based on the capital appreciation of the fund. For example, an investor can choose to transfer 10% of the units held in a debt fund to an equity fund if the debt fund has appreciated by a certain percentage.
STP can help investors reduce market risk, increase returns, and benefit from the volatility of the market. Overall, STP is a convenient way to manage your investments and optimize your returns in the long run. It is important to note that mutual funds are subject to market risks, and past performance is not indicative of future results. Therefore, it is always recommended to consult a financial advisor before making any investment decisions.