All you need to know about systematic transfer plans

STP (Systematic Transfer Plan) is a method used by investors to stagger money into equity funds over a period of time. Investors who have a lump sum amount and want to invest systematically in equity funds, and simultaneously want to earn risk-free returns by investing in liquid/ultra-short-term schemes use this strategy. Investors generally put in a lump sum amount in a debt scheme (typically a liquid or ultra-short term fund) and transfer a predefined amount into another scheme, typically an equity fund. The scheme in which the lump sum investment is made is called ‘source scheme’ or ‘transferor scheme’ and the scheme to which the amount is transferred is called ‘destination scheme’ or ‘target scheme’ or ‘transferee scheme’. Generally investors put lump sums into a liquid/ ultra short-term fund and transfer it to an equity/ balanced/sectoral/thematic fund.

The big benefit of investing in an equity fund using an STP is that when the money remains invested in a liquid/ultra short-term fund, it earns an extra return, which is generally higher than that of a savings bank account. Secondly, STP helps in averaging out the cost by purchasing fewer units at a higher NAV and more at a lower price. Many investors use this method to rebalance portfolios. If investment in debt increases, money can be reallocated to equity funds through systematic transfer plans. If investment in equity goes up, money can be switched from equity to debt funds, using STP.

The first step is to choose both your liquid / ultra short term and your equity fund. First invest in the liquid or ultra short term fund. After that, decide on the amount to be transferred to an equity fund along with the frequency of transfer and set up the STP. Most fund houses have a daily, weekly or monthly option to transfer money. If you invest offline using forms of fund houses, you will have to transfer from the debt fund to the equity fund of the same fund house. However, if you use an online portal, many offer the flexibility to transfer from a debt scheme of one fund house to an equity scheme of another fund house


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