What are Systematic Transfer Plans? Benefits of staggering equity MF investments through STPs – Times of India

by The Technical Blogs


If you are investing for the long-term growth potential, then you may want to consider systematic transfer plans. With elections approaching and stock market volatility expected to rise, financial experts suggest that investors should consider using a systematic transfer plan (STP) when investing in equity mutual fund schemes.
STP allows investors to stagger their investments by transferring funds from a debt-oriented scheme like a liquid fund or ultra-short-term fund to an equity fund gradually.
Investors should opt for an STP when they believe in the long-term growth potential but are concerned about market volatility due to events like elections or overvaluation. This strategy is suitable for those with a lump sum amount to invest in equity funds but prefer a gradual approach while earning returns from liquid or ultra-short-term schemes.
To start an STP, investors first select an equity mutual fund scheme and then initiate the transfer process by investing a lump sum in a source scheme (such as a liquid or ultra-short-term fund) and transferring a fixed amount to the chosen equity scheme. Depending on market conditions, investors can choose to transfer funds over 6-12 months using daily, weekly, or monthly STP options.
The STP process involves investing a lump sum amount in a liquid or ultra-short-term fund and then setting up transfers to an equity fund. Both schemes should belong to the same fund house, with options to transfer funds daily, weekly, or monthly. Investors can customize the transfer amount and frequency based on their preferences, utilizing online mutual fund portals for convenience.
STPs are beneficial when markets are stable or expected to correct in the short term but show growth potential over 3-5 years. However, in a continuously bullish market, the benefits of an STP may be limited.
One advantage of using an STP is the opportunity to earn additional returns of 6.5-7.0% from liquid/ultra-short-term funds, outperforming traditional savings accounts. Additionally, an STP helps in averaging the cost of investment by purchasing units at different NAVs.


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