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What is Systematic Transfer Plan (STP)?

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Systematic Transfer Plan

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

  1. The minimum investment amount varies among fund houses;
  2. 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.

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Randolph Rowe is a professional banker and former General Manager of Small Industries Development Bank of India (SIDBI). He brings with him the wealth of 34 years of all-round experience in the banking sector - comprising 12 years with IDBI and 22 years with SIDBI - which he combines with his flair for writing.

1 COMMENT

  1. The article explains about the STP, which is an abbreviation for the Systematic Transfer Plan. The transfer is basically from debt to equity funds. The basic requirements along with many other points regarding STP are explained above in the article. STP helps to enjoy both the debt and equity by an investor.

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