Smart way of investing.
Systematic Transfer Plan (STP) is a strategy where an investor transfers a ﬁ xed amount of money from one category of fund to another, usually from debt funds to equity funds. Investing a lump sum amount in stocks or equity mutual fund could be dicey for the investor as equity markets are volatile and returns in equity mutual fund is linked to the performance of stock market. Systematic Transfer Plan helps to keep a balance of risk and return.
How does STP work?
Say if a person wants to invest Rs. 12 Lakhs in an equity fund through STP, he will have to ﬁ rst select a
debt fund which allows STP to invest in that particular equity fund. After selecting the debt fund invest all the money that is Rs. 12 Lakhs in the debt fund. Then the investor will decide the amount which will be transferred from debt fund to equity fund and the frequency (i.e he may choose 1 lakh to be transferred in 12 installments on a monthly basis).
Every month on the ﬁxed date 1 lakh will be transferred from the debt fund to the desired equity fund.
Types of STP
- Fixed STP - In this type of Systematic Transfer Plan the transferable amount will be ﬁ xed and predetermined by the investor at the time of investment
- Capital Appreciation - The capital appreciated gets transferred to the target fund and the capital part remains safe
- Flexi STP - Under Flexi STP unit investor have a choice to transfer variable amount. The ﬁ xed amount will be the minimum amount and the variable amount depends upon the volatility in the market. If the NAV of the target fund falls investment can be increased to take beneﬁ t of falling prices and if the market moves up the minimum amount of transfer is invested to take advantage of increasing prices. Transfer facility is available on a daily, weekly, monthly and quarterly interval