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How to use STP smartly
Systematic Transfer Plan (STP) is a tool provided by Mutual Funds that help transfer money automatically between two schemes at a predefined frequency.
Different types
Fixed
Transfer amount is fixed
Transfer amount is fixed
Capital appreciation
Transfer only profit amount
Transfer only profit amount
Flexi STP
Transfer variable amount* based on liquidity
Transfer variable amount* based on liquidity
*minimum transfer amount can vary from different scheme
Benefits of STP
Fixing liquidity problems
Face liquidity problems but want to invest regularly? Simple, once you get money, invest lumpsum amount in liquid scheme and start STP into an Equity scheme- it works like SIP.
Doing value based investing
Rebalance the portfolio across assets based on market valuation, using STP. When markets look overpriced, start STP from equity scheme to liquid scheme and vice versa.
Managing asset allocation for goal based investing
Investor who are nearing the goal either in terms of amount and / or time can transfer investment from equity to liquid scheme using STP to manage portfolio volatility better.
Planning your tax savings better
Lets say you have liquidity issue and still want to invest in an ELSS, start an STP from an existing investment in equity scheme to an ELSS and save tax.
How it works
Mr. X had invested ₹60,000 in scheme A (Liquid - Debt Scheme). now, he wants to transfer ₹20,000 every month in scheme B (an Equity scheme).
With STP, he can invest in scheme B using his existing investment in scheme A, simple by following a one-time registration process.
₹20,000 Per Month
₹60,000
₹40,000
₹20,000
₹0
₹0
₹20,000
₹40,000
₹60,000
Scheme
A
Scheme
B
Month 1
Month 2
Month 3
Month 4
Scheme A
Scheme B
₹60,000
Month 1
₹0
₹40,000
Month 2
₹20,000
₹20,000
Month 3
₹40,000
₹0
Month 4
₹60,000
