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).
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.
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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.
Advantage | Description |
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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. |
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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.