Module 3 : Fund Facilities
Systematic Transfer Plan
What is STP - Systematic Transfer Plan or STP meaning in mutual fund is a mechanism to transfer funds systematically from one mutual fund scheme to another. Let us assume you have lump sum money and want to invest in an equity mutual fund but you are worried that the market may fall or continue to fall for some time. You can invest your lump sum money in a low volatility fund e.g. liquid fund. Since your lump sum funds are invested in a low volatility fund, your overall risk is relatively lower. Using Systematic Transfer Plan, you can then transfer fixed amounts every month from liquid fund to the equity mutual fund of your choice; units of the liquid fund will be redeemed at the applicable NAVs on your chosen STP dates and the redemption proceeds will be used to buy units of the equity mutual fund at applicable NAVs. Example of a STP in mutual fund -
Systematic Transfer Plan
What is STP - Systematic Transfer Plan or STP meaning in mutual fund is a mechanism to transfer funds systematically from one mutual fund scheme to another. Let us assume you have lump sum money and want to invest in an equity mutual fund but you are worried that the market may fall or continue to fall for some time. You can invest your lump sum money in a low volatility fund e.g. liquid fund. Since your lump sum funds are invested in a low volatility fund, your overall risk is relatively lower. Using Systematic Transfer Plan, you can then transfer fixed amounts every month from liquid fund to the equity mutual fund of your choice; units of the liquid fund will be redeemed at the applicable NAVs on your chosen STP dates and the redemption proceeds will be used to buy units of the equity mutual fund at applicable NAVs. Example of a STP in mutual fund -
Let us assume you had Rs 10 lakhs on 1st April 2020 which you wanted to invest in Nifty 50 TRI through a 5 month STP from a liquid fund. Each STP monthly instalment will be Rs 2,00,000. We have assumed S&P BSE Liquid Rate Index as a proxy for the liquid fund. The table below shows how the units are redeemed from S&P BSE Liquid Rate Index for STP in Nifty 50 TRI. Please note that, as the index value grows, we need to redeem lesser number of units for the STP and you have some balance left in the liquid fund even after investing the entire Rs 10 lakhs in Nifty 50 TRI.
STP (Transferor scheme) - S&P BSE Liquid Rate Index
Source: Bombay Stock Exchange, Advisorkhoj Research (Period: 01.04.2020 to 01.09.2020). Disclaimer: The above table is purely for illustrative purposes and should not be construed as investment recommendation. Past performance may or may not be sustained in the future.
Let us now see, how your lump sum amount was invested systematically in Nifty 50 TRI through mutual fund STP. Note that you were investing in Nifty 50 TRI at different price points.
STP (Transferee scheme) – Nifty 50 TRI
Source: Bombay Stock Exchange, Advisorkhoj Research (Period: 01.04.2020 to 01.09.2020). Disclaimer: The above table is purely for illustrative purposes and should not be construed as investment recommendation. Past performance may or may not be sustained in the future.
Benefits of STP
Reduces risk – Lump sum investing in high volatility funds in bear markets or deep corrections has higher risks compared to Systematic Transfer Plan.
Potential higher returns: Money invested in low volatility debt fund has the potential to yield returns till the time it is transferred to equity fund. The returns in debt funds are usually higher than savings bank account.
Rupee Cost Averaging: Mutual Fund STP works to your advantage in highly volatile markets through Rupee Cost Averaging of the purchase price of the target scheme (transferee scheme).
Let us assume you had Rs 10 lakhs on 1st April 2020 which you wanted to invest in Nifty 50 TRI through a 5 month STP from a liquid fund. Each STP monthly instalment will be Rs 2,00,000. We have assumed S&P BSE Liquid Rate Index as a proxy for the liquid fund. The table below shows how the units are redeemed from S&P BSE Liquid Rate Index for STP in Nifty 50 TRI. Please note that, as the index value grows, we need to redeem lesser number of units for the STP and you have some balance left in the liquid fund even after investing the entire Rs 10 lakhs in Nifty 50 TRI.
STP (Transferor scheme) - S&P BSE Liquid Rate Index
| Date | Index Value (NAV) |
Units | Cumulative Units |
Cash Flow | Current Value |
| 03-04-2020 | 1281.66 | 780.2381 | 780.2381 | 10,00,000 | 10,00,000 |
| 04-05-2020 | 1284.53 | 155.699 | 624.5392 | -2,00,000 | 8,02,239 |
| 01-06-2020 | 1287.44 | 155.347 | 469.1921 | -2,00,000 | 6,04,057 |
| 01-07-2020 | 1290.53 | 154.9751 | 314.217 | -2,00,000 | 4,05,506 |
| 03-08-2020 | 1294.19 | 154.5368 | 159.6802 | -2,00,000 | 2,06,657 |
| 01-09-2020 | 1297.38 | 154.1568 | 5.5234 | -2,00,000 | 7,166 |
Let us now see, how your lump sum amount was invested systematically in Nifty 50 TRI through mutual fund STP. Note that you were investing in Nifty 50 TRI at different price points.
STP (Transferee scheme) – Nifty 50 TRI
| Date | Index Value (NAV) |
Units | Cumulative Units |
Cash Flow | Current Value |
| 04-05-2020 | 13086.63 | 15.2828 | 15.2828 | 2,00,000 | 2,00,000 |
| 01-06-2020 | 13850.00 | 14.4404 | 29.7232 | 2,00,000 | 4,11,666 |
| 01-07-2020 | 14707.64 | 13.5984 | 43.3216 | 2,00,000 | 6,37,158 |
| 03-08-2020 | 15388.98 | 12.9963 | 56.3179 | 2,00,000 | 8,66,675 |
| 01-09-2020 | 16227.14 | 12.325 | 68.6429 | 2,00,000 | 11,13,878 |
Benefits of STP
Reduces risk – Lump sum investing in high volatility funds in bear markets or deep corrections has higher risks compared to Systematic Transfer Plan.
Potential higher returns: Money invested in low volatility debt fund has the potential to yield returns till the time it is transferred to equity fund. The returns in debt funds are usually higher than savings bank account.
Rupee Cost Averaging: Mutual Fund STP works to your advantage in highly volatile markets through Rupee Cost Averaging of the purchase price of the target scheme (transferee scheme).