ASystematic Transfer Plan (STP) allows you to transfer a fixed number of units/ amount from your investment in one mutual fund scheme to another scheme managed by the same fund house on a prespecified day every month.
You can start a STP by investing a lump sum amount in a mutual fund scheme and giving instructions to the fund house to transfer a fixed number of units or amount from this investment to the destination scheme.
The STP automatically stops when all the money from the source scheme has been transferred to the destination scheme over a period of time.
STP is usually done by investing a lump sum amount in a debt scheme and transferring the money over time to an equity scheme or vice-versa.
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There are two types of STP in mutual funds:
Fixed STP: In a fixed STP, a fixed amount is transferred at regular intervals, such as monthly or quarterly, from one mutual fund scheme to another.
Capital appreciation STP: In a capital appreciation STP, the capital gains earned from one mutual fund scheme are transferred to another scheme.
As per the information available on the website of Mirae Asset Mutual Fund, benefits of Systematic Transfer Plan are;
-Balancing your investment: STP helps rebalancing the portfolio by allotting investments from debt to equity or vice versa.
– Averaging of Cost: STP has some integral features of Systematic Investment Plan (SIP). One of the differences between STP and SIP is the source of investment. In case of the former, money is transferred usually from a debt fund and in case of the latter; it is the investor’s bank account. Since it is similar to SIP, STP also helps in Rupee Cost Averaging.
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– Aims for Higher Return: Money invested in debt funds generally yields returns till the time it is transferred to equity funds. The returns in debt funds are usually higher than savings bank accounts and aim to assure relatively better performance.
Moreover, it’s important to carefully consider the specific mutual fund schemes involved, as well as the fees and expenses associated with the STP. It’s always recommended to consult with a financial advisor before making any investment decisions.
The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
