STP in Mutual Fund

STP in Mutual Fund

Mutual Funds have traditionally attracted investors looking for higher returns on their investments. However, the same approach includes some risks due to how the market environmental factors affect expected benefits.

In recent years, mutual fund performance has been extremely unpredictable, creating insecurity for investors. But it is possible to fix it by choosing an STP (Systematic Transfer Plan), which will help reduce the associated risks.

What is STP in mutual fund?

A systematic transfer plan enables investors to quickly and easily switch their financial resources from one scheme to another.

This periodic transfer allows investors to take advantage of the market by changing to assets with higher return potential. It protects an investor’s interests during market swings by minimizing losses.

Although the risk is not entirely removed, it is reduced. The investor has the internal flexibility to switch his investments from one mutual fund to another. This transfer occurs within the various schemes that the same company offers.

Almost all asset management firms provide this plan to their valued and regarded customers. STP is a wise way to spread your investments over a set period to lower risks and balance returns.

For example, if you invest “systematically” in stocks, you can profit even under unpredictable market conditions. Here, an AMC allows you to invest a big sum in one fund and make regular transfers of a certain amount to another scheme.

The former is called the source scheme or transferor scheme, while the latter is called the target scheme or destination scheme.

How to Start a Systematic Transfer Plan (STP)?

STP is a helpful technique in mutual funds for averaging your investment over a set time frame. There are three things that must be taken into consideration before choosing between an STP and a lump sum:

  • The investor’s current allocation to equities
  • Their risk tolerance
  • Their outlook for the market

 For example, to invest Rs. 1 lakh in an equities fund using STP, you could choose either an ultra-short-term or a liquid fund.

After that, choose a fixed amount you want to transmit every day, every week, every month, or every quarter. Therefore, if you transfer Rs. 20,000 every 3 months, it will take five quarters (15 months) to finish the investment.

Previously, fund houses only permitted debt-to-equity fund transfers inside the same company. You can now switch between equity funds managed by different AMCs

Types of Systematic Transfer Plans:

Flexible STP:

With this plan, the investor can transfer any amount of money from one resource to another. It is a plan for a selective amount of investment transfer.

Depending on market fluctuations and calculated predictions about a scheme’s performance, investors may wish to transfer a significantly larger share of their existing fund or vice versa.

Fixed STP:

It includes a decision-making process to move a fixed amount from one mutual fund to another. The investor cannot change it later for a set period, as specified by the module specifications, rules, and regulations.

For example, you can raise the amount and vice versa if the destination fund’s Net Asset Value decreases.

Capital STP:

This transfer can be carried out by moving capital funds from one mutual fund to another to invest in mutual funds that are rapidly expanding and increase returns on capital.

Features of a Systematic Transfer Plan:

Minimum Investment:

The source fund does not have a set minimum investment requirement. However, some AMCs demand a minimum of Rs. 12,000 for their systematic transfer schemes.

Entry and Exit Load:

You must make at least six capital transfers from one mutual fund to another before you may apply for an STP. While there is no entry load for you, SEBI enables fund houses to charge an exit load. The exit load, however, can be at most 2%.

Disciplined and Profitable:

The Systematic Transfer Plan (STP) makes it possible to transfer money between two mutual fund schemes in a disciplined and organized manner. Investors start an STP by moving money from a debt fund to an equity fund.

STP Taxation:

While an STP is a wise choice, you should know the transfer’s tax implications and exit loads. Every transfer between mutual funds is regarded as a redemption and a new investment.

Normally, the redemption is taxed. A short-term capital gains charge applies to the money transferred within the first 3 years from a debt fund (STCG). The returns would still be higher than those in a bank account, even with this taxation factor.

Benefits of a Systematic Transfer Plan:

A systematic transfer plan mutual fund has several qualities that make it a suitable choice for investors with different risk appetite levels.

Possibility of Greater Returns:

STPs allow you to switch to a more profitable business during market fluctuations, allowing you to increase the return on your investments. Gaining a competitive edge maximizes profits by purchasing and selling securities in the capital market.

Earning Consistent Returns:

The returns generated by STP are generally trustworthy. This is because until you transfer the entire amount, the money in the source fund (debt fund) creates interest.

Managing Risks:

Another option is to transfer assets from one risky asset class to another using an STP. For example, imagine that you started a SIP for an equity fund for 30 years as part of your retirement planning. Starting an STP can help you stop fund value loss as you get closer to retirement.

In this case, you tell the fund manager to move a fixed sum from the equity fund to the debt fund. By doing this, you would have transferred the entire accumulated corpus to a safer place by the time you retire.

Rupee Cost Averaging:

Systematic Transfer Plans reduce investing costs by purchasing fewer units at a greater NAV and more units at a lower price. The fund manager would keep adding new units when your money was moved from one fund to another.

As a result, you will profit from rupee cost averaging because the investment’s per-unit price will eventually decrease.

Rebalancing the Portfolio:

The ratio of debt to equity in your portfolio should be balanced. An STP rebalances the portfolio by switching investments from debt funds to equity funds or vice versa

Who is Suitable for a Systematic Transfer Plan?

For people with limited resources who wish to invest in the stock market and earn significant returns, STP mutual funds are a perfect choice.

Such investors have the option of investing in debt or liquid funds. When you transfer this money to an equity fund, you obtain the fixed returns from the debt funds and the potential returns from the equity plan.

Things to Remember While Investing via STP:

STP should only be used if you have a large sum of money to invest that you may not require right away.

Although the fund company determines the minimum investment, SEBI regulations need at least six STPs.

STP is one of the safest risk-reduction tactics available to investors. However, they cannot eliminate risks. A low market might also be expected to result in lower returns.

Discipline is required for this method. If you opt out of a plan simply because of market volatility or a change in interest rates, the objective of opting for it will be lost.

The underlying assets and their stages should always be monitored. For example, transferring capital when the market is about to peak would be irrational. STP is a practical risk management technique that doesn’t significantly reduce your returns.


  • STP can help you control risks without significantly lowering your profits.
  • If you wish to invest using a systematic transfer plan, select the one that best suits your requirements.
  • The Securities Exchange Board of India (SEBI) has defined six transfers among various investment schemes as the eligibility requirements for investing in systematic transfer plan mutual funds.
  • Even though investments made through systematic transfer plans guarantee exposure to reduced market risks, they cannot be eliminated.
  • You can choose between daily, weekly, fortnightly, monthly, and quarterly STP frequencies.
  • This helps spread the risk of investing in equities mutual funds over time.
  • You receive the benefits of both equity growth and debt fund safety.