SYSTEMATIC TRANSFER PLAN

• Meaning –

-A systematic transfer plan allows investors to shift their financial resources from one scheme to the other instantaneously and without any hassles. This transfer occurs periodically, enabling investors to gain market advantage by changing to securities when they offer higher returns. It safeguards the interests of an investor during market fluctuations, to minimize the damages incurred.

• BENEFITS OF SYSTEMATIC TRANSFER PLAN:

Balancing your investment STP helps rebalancing the portfolio by allotting investments from debt to equity or vice versa Averaging of Cost STP has some integral features of Systematic Investment Plan (SIP). One of the differences between STP and SIP is the source of investment. In case of the former, money is transferred usually from a debt fund and in case of latter; it is the investor’s bank account. Since it is similar to SIP, STP also helps in Rupee Cost Averaging Aims for Higher Return Money invested in debt fund generally yields returns till the time it is transferred to equity fund. The returns in debt funds are usually higher than savings bank account and aims to assure relatively better performance.

• Types of Systematic Transfer Plans? Source 3

A best systematic transfer plan can be of primarily three types-  

• Flexible STP

Under this type of systematic transfer plan, the total funds to be transferred are determined by investors as and when the need arises. Depending upon market volatility and calculated predictions about the performance of a scheme, an investor may want to transfer a relatively higher share of his/her existing fund, or vice-versa.

• Fixed STP

In case of a fixed systematic transfer plan, the total amount to be transferred from one Mutual Fund to another remains fixed, as decided by the investor.

• Capital STP

Capital systematic transfer plans transfer the total gains made from market appreciation of a fund to another prospective scheme with a high potential for growth.

• How to Start a Systematic Transfer Plan?

-STP is a useful tool in mutual funds to average your investment over a specific period. To decide on whether one should do an STP or lump sum depends on three factors – an investor’s current allocation to equities, the risk profile of the investor and finally, the market view. For instance, to invest Rs.1 lakh in an equity fund using STP, you may first select either an ultra-short-term fund or a liquid fund. -After that, decide on a fixed amount that you want to transfer daily, weekly, monthly, or quarterly. Hence, if you choose to move Rs.20,000 every three months, it will take five quarters (15 months) to complete the investment. Earlier, fund houses allowed only debt to equity fund transfer within the same company. Now, you can transfer from an equity fund of one AMC to that of another.