Mirae Asset Sharekhan Blog

What is a Systematic Transfer Plan (STP)?

  • Feb 27, 2025

Systematic Transfer Plan or STP Meaning

Investors can easily and frequently transfer their funds across various mutual fund schemes by using a systematic transfer plan, or STP. This enables them to benefit from changes in the market and possibly larger returns. STPs are useful because they reduce losses in times of market volatility.

The primary advantage of selecting an STP in mutual fund is its seamless fund transfer procedure. Moreover, it allows investors to automatically move their cash between preferred funds, streamlining and streamlining the resource allocation process.

STPs only permit transfers within funds administered by a single asset management company; it's important to remember that. An STP cannot be used to transition between schemes provided by several firms.

Types of STP

1.    STPs for capital appreciation

Through the preservation of the initial investment, this kind of STP enables investors to profit from their gains by moving appreciated funds to another fund. However, aiming for even larger growth potential in the new strategy is similar to shifting profits from one pot to another.

2.    Static STPs

Investors that use fixed STPs have specified transfer amounts and frequencies at the beginning of their investment journey. Keeping this in mind, they can arrange their money with the steadiness and predictability that this fixed transfer pattern provides.

3.    Flexible STPs

Investors can modify the transfer amount through Flex STPs in response to changes in the market or scheme performance. Although the minimum amount to be transferred is fixed, the variable amount is flexible, allowing investors to adjust to shifting market conditions.

Benefits of a Systematic Transfer Plan

1.    Offers Higher Returns

With STPs, you can take advantage of market fluctuations to transition to a more lucrative enterprise, increasing your returns on investment. By using this strategy to obtain a competitive edge, the capital sector's buying and selling of assets optimizes earnings.

2.    Delivers Stability

Investors have the option to use a securities transfer program (STP) to move their money from stock market speculative funds into comparatively safer investment vehicles, including money market instruments and debt funds.

However, this enables an investor to guarantee the protection of their financial resources while also generating steady profits.

3.    Optimal Balance

The goal of the best systematic transfer plans is to combine debt and equity instruments to construct a portfolio that offers the best possible balance between risk and return. The transfer of funds is mostly done to debt securities for investors who are risk averse, whilst equity instruments are intended for those who have a tolerance for risk.

4.    Rupee Cost Averaging

This kind of method is used during the purchase of equity stock and index mutual funds by STP, and it provides a lower average fee incurred by the investors. Factoring in this way come up with a Rupee Cost Averaging modifications.

We generate returns through the strategy of entering funds investment when their average price has dropped and exiting/selling them when the market value has increased, achieving capital gains on the individual assets in this process.

5.    Taxability

If capital gains are realized, each transfer made under the systematic transfer plan is eligible for a tax deduction. Gains from these mutual funds are taxable at 15% under short-term gains if the investment is redeemed before the three-year period has passed. Tax deductions for long-term capital gains are contingent on the investor's yearly income.

Things to Consider Before Setting Up an STP

  1. Performance of Source Scheme: Evaluating the source scheme's performance is essential prior to establishing an STP. The fund might not be appropriate for an STP if it has a high-risk profile or has underperformed on a regular basis.
  2. Risk Profile: Prior to establishing an STP, investors must take into account their level of risk tolerance. They can choose between a capital appreciation STP and a fixed STP depending on how comfortable they are with risk.
  3. Exit Charges: When you remove money from the source plan and transfer it through an STP, some mutual fund firms may impose exit costs. Before establishing an STP, these fees must be taken into account.

The Bottom Line

An effective tool for investors to manage their assets and reduce risk is a Systematic Transfer Plan. It provides investors with tax incentives and encourages disciplined investing. Investors can set up an STP that supports their investing objectives by being aware of the various forms of STPs and taking crucial variables into account.

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