Systematic Transfer Plan (STP) - ValueurincomeValueurincome

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What is STP

STP is a mode of investing, where you initially park your entire Rs 1 lakh in a less risky category of mutual fund such as a liquid scheme, and then systematically transfer money on a regular basis from the liquid scheme to an equity fund or any other mutual fund scheme of the same fund house. So, while you are able to invest your money on a regular basis, the liquid scheme provides you an opportunity to earn returns better than your bank’s saving account.

Benefits of Systematic Transfer Plan (STP)

STP helps in gradually investing a large corpus

In a selected asset class (…Like SIPs, STPs help you invest gradually in a selected asset class like equities. But unlike SIP, in STP the investor initially invests in less risky liquid funds that may offer better returns, and over time gradually or systematically transfer a certain amount from the scheme to another scheme which may be an equity fund from the same fund house.)

STP is a relatively safer investment method

Than lump sum investment and may prove to be a higher yielding method than SIP investment (…As all your money is not invested directly in risky asset class, STP may turn out to be a relatively safe investment strategy. Moreover, it also provides you with an opportunity to put the idle money in your bank’s savings account)

STPs provide you with the benefit of Rupee Cost Averaging

(…Like SIPs, STPs too help you invest on a regular basis at various market levels. So when the markets fall, you buy more units with the same amount; while if the market trends higher, you buy less units and simultaneously the value of your existing units grow.)

You can start your STP with a Single Mandate

(…So as an investor, you need to give a single mandate to the fund house to periodically and systematically transfer a certain amount from one scheme to another. While you need to draw the cheque in favour of the initial scheme, you should mention, in the STP application form, the name of the secondary scheme where you wish to transfer the money, along with the amount and period.)