systematic transfer plan (STP):

Mutual Funds investment has always attracted investors to gain higher returns on their investments. However, the same carries some risk because of the influence of the market situation on the expected returns. In recent times, mutual fund returns have been very volatile, creating insecurity in the investors. But certainly, it can be fixed by opting for STP (Systematic Transfer Plan) which will help to lower such risks involved. This article is a walk-through to learn more about STP in mutual funds.

A systematic transfer plan or simply STP is a type of plan facilitating the investment of a given sum amount into the mutual funds in a specific way. This plan gives investors the power to shift their investment from one resource to another thereby providing safety from the fluctuations happening in the market. Although it does not remove the risk completely, it surely reduces the risk involved. The investor can shift his investment from one mutual fund to other ones internally. This transfer takes place in the multiple schemes offered by the same companies.

Nearly all asset management companies offer this plan to their valued and esteemed customers.

Types of STP


There are various types of STP in existence currently from which the suitable one can be chosen according to the need of an investor, also considering the size of the investment.

Capital based STP


The name itself suggests that the capital gain made out of investment can be applied with STP. This transfer can be made by transferring the capital funds from one mutual fund to the other for gaining more returns on capital by investing in the mutual funds which are fast-growing.

Fixed STP


This module works differently, it involves a decision-making process to transfer a fixed sum of money from one mutual fund to the other where the investor cannot change it later for a certain period as per the module specifications, rules, and regulations.

Flexible STP


This plan provides freedom to the investor to choose any amount of investment he is willing to shift from one resource to the other. It’s a selective amount investment transfer plan.




Structure and benefits of STP


The structure of the STP plan consists of 3 steps:
• Selection of the plan.
• Followed by execution of the process.
• End-stage by getting the desired returns and assured safety.

Fee involved :


When an investor chooses one plan out of the above-mentioned three plans, his STP process starts. After choosing to make a transfer of mutual funds, investors don't have to pay any entry fee charges to the companies. However, some companies may impose an exit load if the investor exits the fund before a certain period.


Applicable Taxations :


The investor is also liable to taxations on the returns gained on STP since it is nothing but mutual fund gains only. The short term capital gains or STCG are taxed at 15% whereas the long term capital gains or LTCG are tax-free up to ₹1 lakh, above which a 10% tax is levied as on 2023.




Benefits of STP


No minimum amount of investment :

There are no criteria for a specific amount of money that has to be minimum while investing in a plan. One can invest any amount of money as per his capacity and willingness.

Increased gains :

The investment made in the market is prone to market fluctuations and fluctuating gains in percentage. The STP overall improves the gain ratio by transferring the funds at the hour of major market shifts allowing the transfer of the investment to the better and fast-growing potential companies instead of just watching investment fall into losses.

Stability in investments :

When an investor opts for STP, their portfolio can be stabilised by maintaining the parity between debt funds and equity funds as and when required.

Rupee Cost Averaging module :

The Rupee Cost Averaging Module followed by STP is very beneficial for the investors. This module initiates both buying and selling of the mutual funds when it is most beneficial to the investor. The buying is done by the fund manager by keen and consistent observation, the study of the mutual funds, and buying it when its buying price is lower. The fund manager also Sells it when the selling price is higher than the buying price thereby averaging the rupee cost and giving expected outcomes out of the STP plan.