Systematic Transfer Plan refers to Mutual Fund investment method where an investor is able to invest lump sum amount in a scheme and regularly transfer a fixed or variable amount into another scheme. Transfers are usually made from debt funds to equity funds if the market is doing well and vice versa if the market is not performing well.
Why should one opt for STPs?
- Time-saving: Instead of selling equity mutual funds units first and then waiting for sale proceeds before re-investing into any other scheme, STP provides you smooth transfer of your funds from one scheme to another of the same fund house. Its saves you time and reduces the cost due on transaction front
- Consistent returns – Money invested in debt fund earns interest till the time it is transferred to equity funds. The returns in debt fund are higher than returns from savings bank account and assure relatively better performance.
- Re-balancing portfolio – An investor’s portfolio should be balanced between equity and debt. STP helps in re balancing the portfolio by reallocating investments from debt to equity or vice versa.
- Works as SIP – One can invest in a Debt fund and from there start a STP to an Equity Fund, so it works like a systematic Investment Plan (SIP).
- Invest in ELSS –One can override the volatility of the markets – By Investing lumpsum in debt scheme in the beginning of a financial year and doing a STP transfer to ELSS over 11-12 months
- Using STP when an important goal is near – Don’t wait till target date of the goal, you don’t want to see your Money dip by 40-50% within 6 months or so if markets suddenly crash , start moving your money out of equity and transfer it to Debt through STP .
STPs ensure the optimum use of idle money. Instead of idle cash lying in your bank account, any lump sum invested in a debt scheme will fetch higher returns.