A Systematic Transfer Plan (STP) is a methodology for the transfer of funds from one asset class of mutual funds to another asset class. Most commonly, the transfer is from debt funds to equity funds. Returns of equity funds are linked to the stock market and are, therefore, exposed to market volatility. On the other hand, the return from debt funds is often unattractive. The STP strategy helps keep equilibrium between risk and return.
Basic requirements
- The minimum investment amount varies among fund houses;
- A minimum of 6 transfers should be effected;
- There is no entry load, and exit load depends on the period of investment with the maximum at 2%
Variants of STP
Fixed STP
The amount to be transferred is preset by the investor at the time of making the investment.
Capital appreciation STP
The original investment remains intact. Only the capital appreciation is transferred to the selected target fund
Flexible STP
An initial amount is determined and becomes the minimum amount to be transferred. When the NAV of the target fund declines, the amount to be transferred can be increased to take advantage of the lower pricing of units. When the NAV is high, only the pre-decided minimum need be transferred.
A Systematic Transfer Plan (STP) can help an investor enjoy the best of both worlds – debt and equity.
