What is a Systematic Transfer Plan (STP)?

A Systematic Transfer Plan allows investors to shift their financial resources from one scheme to another periodically and without hassles. This helps investors take advantage of market conditions by moving funds to securities offering better returns. It also helps minimize losses during market fluctuations.

The primary benefit of an STP is the streamlined and automatic reallocation of funds between selected mutual fund schemes. However, STPs can only transfer funds between schemes operated by the same asset management company (AMC), not across different fund houses.

Types of Systematic Transfer Plans

• Flexible STP: Allows investors to choose the transfer amount as per market conditions. Based on predictions or market volatility, the amount can vary.
• Fixed STP: A fixed amount is transferred at regular intervals, as pre-decided by the investor.
• Capital STP: Only the capital gains from one scheme are transferred to another fund with high growth potential.

Features of a Systematic Transfer Plan

• While SEBI does not mandate a minimum investment, most AMCs require a minimum of ₹12,000 to start an STP.
• At least six transfers are typically required to be eligible under the scheme.
• No entry load is charged, but an exit load (up to 1%) may apply on each transfer.
• Transfers from liquid funds to equity funds are usually exempt from exit load charges.

Benefits of a Systematic Transfer Plan

• Higher Returns: STPs help in maximizing returns by reallocating funds to more profitable schemes during favorable market conditions.
• Stability: During volatile markets, funds can be shifted from equities to safer options like debt or money market instruments.
• Rupee Cost Averaging: STPs help lower average investment costs by investing more when NAVs are low and less when NAVs are high, thus generating potential capital gains.
• Optimal Balance: STPs offer a mix of equity and debt investments tailored to investor risk tolerance, ensuring a balanced portfolio.