Systematic Transfer Plan: If you invest in mutual funds through SIP, this news is not only important for you but also beneficial. Today, we will learn about the Systematic Transfer Plan (STP), an investment strategy. Through STP, you can transfer your funds from one mutual fund scheme to another at pre-determined intervals. This transfer occurs periodically and can help you achieve higher returns.

Transfer Funds Within the Same Mutual Fund Company

STP proves to be very beneficial in a falling market as it helps reduce your losses significantly. Using STP, you can withdraw money from an equity scheme and transfer it to a debt scheme. Similarly, you can also move money from a debt scheme to an equity scheme. However, keep in mind that with STP, you can only transfer funds between schemes of the same mutual fund company. You cannot transfer funds from a scheme of one company to a scheme of another.

There are 3 types of STP

STP offers three types of options: Flexible STP, Fixed STP, and Capital Systematic Transfer Plan. STP has several benefits. For example, when the market is falling, you can switch from one scheme to another to limit your losses. Additionally, you can save on taxes by transferring funds from an equity scheme to an ELSS scheme. This also helps in managing risk.

Benefits of STP

Helps in reducing losses during a falling market by switching funds between schemes.
Allows tax savings by transferring funds from an equity scheme to an ELSS scheme.
Helps in managing investment risks effectively.

Increase Returns While Reducing Risk

By using STP, you can transfer funds from one scheme to another, reducing risks and losses while improving returns. It allows you to move funds from highly volatile schemes to more stable options, ensuring better financial security.

Who Should Invest in a Systematic Transfer Plan?

Systematic Transfer Plan (STP) mutual funds are ideal for individuals with limited resources who want to generate high returns by investing in the stock market. It is also suitable for investors who prefer to reinvest their money in relatively safer securities, such as debt instruments, during times of market instability or fluctuations.

Things to Remember When Investing with STP

1. Long-Term Investment

STP is designed for long-term investments, so you should not expect massive returns immediately. Be prepared for gradual growth over time.

2. Market Knowledge is Key

Investors should have a good understanding of market trends and patterns. Knowing how market values fluctuate will help you make the most of your investments in STP.

3. Consider Exit Loads and Taxes

When calculating expected returns, take exit loads and tax deductions into account. The security of your principal amount and the returns depend on the performance of the mutual funds you invest in.

4. Risk Reduction, Not Elimination

While STPs help reduce market risks, they cannot eliminate them. There will still be some level of risk involved.

Eligibility Criteria for STP Mutual Funds

To invest in STP mutual funds, you need to make at least six transfers among different investment schemes, as per the guidelines set by the Securities and Exchange Board of India (SEBI).