WHAT IS STP

What is a STP?

Systematic Transfer Plan (STP) is a tool provided by Mutual Funds that help transfer money automatically between two schemes at a predefined frequency.

How it works?

Mr X had invested Rs 60 thousand in scheme A (Liquid – Debt Scheme). Now, he wants to transfer Rs 10 thousand every month in scheme B (an Equity scheme). With STP, he can invest in scheme B using his existing investment in scheme A, simply by following a one-time registration process.

Different Types of STP

Fixed – Transfers amount is fixed.

Capital appreciation – Transfers only profit amount

Flexi STP – Transfers variable amount based on liquidity

Strategies to use STP

Fixing liquidity problems 
Face liquidity problems but want to invest regularly? Simple, once you get money, invest lump sum amount in liquid scheme and start STP into an Equity scheme – it works like SIP.

Doing value based investing 
Rebalance the portfolio across assets based on market valuation, using STP. When markets look overpriced, start STP from equity scheme to liquid scheme and vice versa.

Managing asset allocation for goal based investing 
Investors who are nearing the goal either in term of amount and /or time can transfer investment from equity to liquid scheme using STP to manage portfolio volatility better.

Planning your tax savings better 
Let say you have liquidity issue and still want to invest in an ELSS, start an STP from an existing investment in equity scheme to an ELSS and save tax.