KNOWLEDGE CENTRE Mutual Fund Types / What Is A Systematic Transfer Plan?
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What Is A Systematic Transfer Plan?


As the age-old saying goes, “Nothing is permanent but change”. The modes of savings have evolved over time, from regular savings to investments. It is no longer about gathering a lump sum amount but making your monthly savings earn and grow on their own as well.

Systematic Investment Plans is an investment instrument wherein you can invest small amounts of savings on a regular basis and earn high returns over the long term by staying invested. Irrespective of the fund you choose there is always some risk involved. Although you may minimize these risks, you are never able to write it off completely. If the fund performance is in line with the overall market trend, you may consider increasing the investment to average your overall holding cost per unit. However, if the performance is not as per the overall market trend, you may consider a Systematic Transfer Plan (STP).

What is Systematic Transfer Plan?

Systematic Transfer Plan is a type of plan that enables you to transfer your investment from one fund to another in a staggered manner and reduces the risks of volatile market conditions. You may either use a transfer plan on your existing investments or make lump sum investments with fund houses that allow the transfers.

This strategy is beneficial if you want to invest systematically in equity mutual funds during volatile market conditions to earn risk-free returns on short-term liquid plans. With the growing invested amount, your risk appetite also increases. Therefore, you would want to earn higher returns and grow your investments faster. However, you might not want to transition completely or would want it to be gradual. This is where the Systematic Transfer Plan is beneficial.

What are the types of Systematic Transfer Plan?

Here are two types of systematic transfer plans in Mutual Funds that are currently available in the market:

1. Fixed STP
2. Capital Appreciation STP

  • Fixed STP
    Herein a fixed amount is transferred from your existing investment to another fund of your choice. For example, assume you had been investing in debt funds simply to play safe, as you were new to the financial markets set-up. Now that you have a clearer understanding, you do not mind assuming more risks and want to switch to an equity fund from your current debt fund. But you are concerned because the future of the currently low market is very volatile, and it could fall even further. This is when you can use a fixed transfer plan to switch. Under this plan, a fixed amount is gradually transferred from the existing fund to the equity fund. This strategy defends you against any adverse market movements and reduces losses if any due to unfavorable changes.
  • Capital Appreciation STP
    Herein, the profits or earnings you make on your investments are transferred to a different fund of your choice instead of reinvesting in your current fund. The amount in your current fund remains constant while the profits are invested for capital appreciation. This strategy is beneficial if you want to protect your principal investment but are willing to assume higher risks with the profits earned on the same.

How does Systematic Transfer Plan work?

In case you do not have an existing investment in funds and are looking to buy mutual funds with a lump sum amount, you can do so with a Systematic Transfer Plan. Herein you first need to choose the ultra-short-term or liquid fund. Next, you must set the amount you wish to transfer and the frequency at which you wish to transfer to the targeted fund. You may transfer on a daily, weekly, monthly and quarterly basis. Transferring offline requires you to transfer from one fund to another from the same mutual fund house. However, online portals allow transfers from one fund house to another.

Now that you understand what is STP, you may use it to mitigate the market-related risks. However, investment discipline is important to maximize returns. It is crucial you clearly understand the different assets and its stages to ensure the transfer is not counter-productive. Invest in transfer plans and make your surplus funds work for you. Download the Angel Bee app and choose from a variety of STP that suits you the best.


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