STP

Systematic Transfer Plan allows an investor to transfer/switch a fixed amount to another scheme of the same fund house. STP can be done only when both the mutual funds belong to the same fund house. Thus it is essential to do a detailed groundwork to choose the right funds.

While investing in STP, One should be aware of the Tax Implications and applicable exit loads on the transfer amount. Every transfer from one fund to another is considered as redemption and fresh investment. This type of redemptions is usually taxable.

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Investors can use Systematic Transfer Plan (STP) as a defence mechanism in volatile market. This plan is used to transfer investment from one asset or asset type into another asset or asset type.

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STP is a variant of SIP. STP is essentially transferring investment from one asset or asset type into another asset or asset type. The transfer happens gradually over a period.

Benefits of STP-

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a) Consistent return – Returns in STP are pretty consistent as money invested in the debt fund earns interest till the time it is transferred to equity fund. The returns in debt fund are higher than returns from savings bank account and assure relatively better performance.

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b) Averaging of cost - STP has some integral features of systematic transfer plan (SIP). Similar to SIP every month an amount is invested in an equity fund. One of the differences between SPT and SIP is the source of investment. In case of the former money is being transferred from a debt fund and in case of later investor’s bank account. Since it is similar to SIP, STP helps in averaging out the cost of investors by purchasing fewer units at a higher NAV and more at a lower price.

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c) Rebalancing portfolio – An investor’s portfolio should be balanced between equity and debt. STP helps in rebalancing the portfolio by reallocating investments from debt to equity or vice versa. If investment in debt increases money can be reallocated to equity funds through systematic transfer plan and if investment in equity goes up money can be switched from equity to debt fund.

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Types of STP:-

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Fixed STP – In this type of Systematic Transfer Plan the transferable amount will be fixed and predetermined by the investor at the time of investment.

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Capital Appreciation – The capital appreciated gets transferred to the target fund and the capital part remains safe.

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Flexi STP – Under Flexi STP unit investor have a choice to transfer variable amount. The fixed 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 benefit 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,