Advantages of Systematic Transfer Plan (STP)
By Anupama Deshpande | October 23, 2017
Share This :
Unlike a Systematic Investment Plan (SIP), where monthly instalments are debited from your bank account on a fixed date every month and credited to your mutual fund scheme, in a Systematic Transfer Plan (STP), the amount is debited from one mutual fund scheme and credited to another mutual fund scheme on a fixed date every month. STP is an option given by the mutual funds to the investors to keep a balance between risk and return.
This plan can be opted only under open ended schemes of any mutual fund. There are a lot of advantages of Systematic Transfer Plan (STP).
What is a Systematic Transfer Plan (STP)?
Systematic Transfer Plan (STP) is a plan where the investor invests a lump sum amount in one scheme and a fixed sum is regularly transferred on pre-defined interval/ date into another scheme of his/ her choice.
Interested to know Why you should not keep All Your Money in Banks Savings Account?
Difference between Systematic Investment Plan (SIP) and Systematic Transfer Plan (STP)
In SIP the amount is debited directly from your bank account on a pre-fixed date and credited to one mutual fund scheme whereas in STP amount is debited from one MF scheme and credited to another MF scheme on a pre-fixed date/ interval. STP is a scheme to scheme transfer of funds.
Advantages of Systematic Transfer Plan (STP)
| Advantage | Description |
|---|---|
| Cost averaging | As it is not a lump sum investment and is being invested in instalments on different times, it does averaging of cost and it makes investment more cost effective |
| More returns | As the lump sum amount is invested in a debt/ liquid scheme and then gets transferred to an equity scheme, the amount invested in debt/ liquid fund earns much more returns than amount kept in savings account |
| Convenient process | STP request needs to be submitted only once and it processes regularly afterwards |
| Risk return balancing | As the amount is balanced between debt & equity schemes, it is helpful in risk return balancing |
| Benefit of reverse STP | You can start an STP from equity fund to debt/ liquid fund as well |
| Helpful in wealth creation | As STP gives benefits of both the schemes i.e. debt & equity, and regularly your equity investments keep increasing which generates more returns, it helps in wealth creation |
| Availability of modes | STPs are available in multiple modes such as daily STP, weekly STP, Monthly STP, Quarterly STP, etc. |
| Flexibility | There are 2 flexible types are available in STP i.e. Fixed STP and Capital Appreciation STP, the investor can choose from these types |
| Combining capital protection & capital growth | Debt/ liquid scheme is the best scheme for capital protection and equity scheme is the best scheme for capital growth. STP provides the combination of both the schemes. |
Interest to know Become a Crorepati in the age of 40: the secret revealed
Conclusion
STP is a way to make an optimum use of your idle money kept in your bank account. Instead of keeping it there, you should invest a lump sum amount in a debt/ liquid scheme that will earn higher returns than savings account and further, STP will generate more returns in Toto. One must take an advice from his/ her financial advisor while selecting schemes generating good returns, in case he/ she doesn't have proper knowledge or tracking Mutual Funds.
Anupama is a Co-Founder of CodeForBanks.com. She is an MBA (Finance) and Chartered Financial Analyst (CFA). She also carries a Fellowship degree in Life Insurance Sector and is a Master of Computer Application (MCA). She is an expert in Finance Field with an experience of over 18 years on different managerial positions in finance industry including Stock Market, Depository and Mutual Fund Sectors. Apart from that she has remained for few years in the field of marketing as well. Her suggestions and advice for investments have been very useful to many people.Her vast interest & expertise in the field of finance have encouraged her to write the articles so that others can also get benefitted out of them. She never loses any opportunity to learn and be creative. She is a valuable asset for CodeForBanks.com & important resource to all those around her.