Systematic Transfer Plan (STP)

STP is a method in which an investor transfers a defined amount of money from the Source scheme to the Target scheme (usually from a debt fund to an equity fund). PROS OF A SYSTEMATIC TRANSFER PLAN Managing your Financial Resources: Redistributing investments between debt and equity, STP aids in portfolio rebalancing. Cost-Averaging: Systematic Investment Plan (SIP) characteristics are incorporated into STP (SIP). The source of investment is a major distinction between STP and SIP. Money is often transferred from a debt fund in the first situation, and from the investor's bank account in the second. STP, like SIP, aids in rupee cost averaging because of its similarity to SIP. Aiming for Increased Profitability: In most cases, money invested in a debt fund earns interest until it is transferred to an equity fund for further growth and development. Debt funds often offer larger returns than savings accounts and are designed to provide a higher level of risk-adjusted returns. TYPES OF STPs Fixed STP-Investors move a specific sum from one investment fund and transfer it to another fund. In capital appreciation STP, the investors take out the profit that they have gained on one investment and invest in another investment fund. Flexi STP- Investors might opt to transfer a variable amount. The fixed amount would be the minimum amount and the variable amount depends on the volatility of the market. Capital STP-Investors reinvest the complete profits generated by a fund's market appreciation in another prospective scheme with a strong development potential. STP vs SIP- https://www.myrupaya.in/post/difference-between-sip-and-stp Features of STP- A systematic transfer strategy includes the following components: Minimum Investment STP does not need a minimum investment. However, some AMCs need a minimum payment of Rs 12,000. Load at the Entry and Exit Six capital transfers from one mutual fund to another are necessary to apply for a STP. Once investors are free of entrance charges, SEBI permits fund companies to levy an exit charge of no more than 2%. Tax Investors should be aware of the departure charges and tax consequences associated with the transfer. Each transfer between funds is regarded as a redemption and a new investment, and the refund is often taxed. Disciplined STP permits controlled fund transfers, and in most circumstances, it is possible to establish a systematic transfer plan from a debt fund to an equity fund.

Systematic Transfer Plan (STP)