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Systematic Transfer Plans (STP)


When it comes to investing, some traditionalists prefer taking the ‘all or nothing’ route. Which means, they either invest a huge amount or don’t invest at all. Investing huge amounts has reaped huge returns in the past. However, in the last year, markets have been somewhat temperamental and quite a few people have incurred heavy losses. Noted economist John Maynard Keynes made an accurate observation “Markets can remain irrational longer than you can remain solvent.” Decades later this still holds true.

As markets continue to be comparatively unstable, more and more investors are cautious of putting all their money in at once. They keep looking for innovative avenues which allow for not only minimising associated market risks but also getting good returns.

Systematic payments can be either through Systematic Investment Plans (SIP) or Systematic Transfer Plans (STP). With the SIP option investors can pay in parts at regular intervals. You can allow some amount to be debited from your savings account, at periodic intervals. This saves you the trouble of issuing cheques each time you need to invest.

A Systematic Transfer Plan works differently from a SIP, it allows you to transfer funds from one mutual-fund to another. How it works is, you invest a lump-sum amount into a ‘source’ scheme and transfer fixed or variable sums into other ‘target’ schemes.

Systematic Transfer Plans Recommended by Angel BEE

Systematic Investment Plans (STPs) come in useful during times of high market volatility. These save the expense and time wasted on exiting from or redeeming a non-performing fund. It is considered a smart way to minimise risk and even out returns in a specific time-frame. If your source fund is equity-oriented, in negative market cycles you might want to transfer funds to targeted debt-oriented funds. Similarly, if your source fund is debt-oriented, you might want to take advantage of high returns by targeting well-performing equity-oriented funds.

These plans are classified based on how the funds are transferred. If you transfer fixed sums from the source to target schemes, it’s called a Fixed STP. A Flexible STP lets you increase or decrease transfer amount (with a pre-determined lowest limit). If the transfer sums are made only from the profits of the source fund, it’s called a Capital Appreciation STP.

These types of plans are cost-effective because they do away with the need to incur redemption expenses. Moreover, the most recommended plans help you slow down risks associated with market volatility especially if your source fund is equity-oriented. Here are our recommendations:

Top Systematic Transfer Plans in India

The best Systematic Transfer Plans should give you these benefits:

  • Higher or Steady Returns: Think about comparing all your savings being idle in a bank account. This type of plan is like a mutual-fund account but will give twice the returns than an ordinary bank account. Also, in market slumps the losses get balanced out over multiple funds, which means the average rate of returns will still be steady. Even if you transfer out of your source fund periodically, it will continue to generate returns, unless you transfer the entire the amount out. This means, these types of plans can generate returns in any market cycle and at any time.

  • Risk Management: These plans let you make the most of any market cycle. In positive market cycles you can transfer out to well-performing equity-oriented funds. In this way you can get higher NAV and great returns. Likewise, during market downturns, you can transfer out to debt-oriented funds which are unaffected by market volatility or less risky equity-oriented funds like Large-Cap funds. This is a smart way to manage risks and ensure you don’t have to bear huge losses.

  • Portfolio Re-Balancing: These plans are the best way to balance your portfolio. Instead of spending on entry and exit fees each time you want to invest, you can simply transfer out to another fund of your choice. Another benefit of portfolio-re-balancing is, it helps in achieving long-term goals like wealth creation and retirement. Here’s the list of top plans in India:

Everything You Need to Know About Systematic Transfer Plans

A Systematic Transfer Plan allows you to invest in more than one mutual-fund at any time, without incurring expenses of redemption. These are preferred by investors who want to minimise risk by transferring out to safer funds.

You need to make a lump-sum investment in a ‘source’ fund and then set periodic transfers to ‘target’ funds.

There are three ways in which you can transfer out, they are Fixed STPs, where the transfer amount is fixed, Flexible STPs allow you to increase or decrease your transfer amount and Capital Appreciation STPs let you transfer out only the profits of your source fund.

The transfer can be made between debt- and equity-oriented funds, based on market movements and financial goals. In positive market movements, you can transfer out to equity-oriented funds for taking advantage of high returns. In negative market movements, you can transfer out to debt funds which tend to be safer during market slumps. Moreover, many investors prefer transferring out to debt funds when their investment holding periods are longer; this helps create wealth for retirement. Therefore, you’re not only minimising risks but also re-balancing your portfolio.

These plans are lucrative and cost-effective because, the expense ratio is less in comparison. You can purchase less units, at higher NAV during market upturns. Moreover, since you can simply transfer out to other funds, you don’t have to pay redemption fee. This also makes the plans less expensive.

Why Systematic Transfer Plans?

Systematic Transfer Plan are considered safer even though you need to make an initial lump-sum investment. The main reason is, you can choose to transfer regular sums from your source fund to other target funds. This is a great way to not only compound your wealth but also maximise returns on your investment.

With the flexibility of transferring out to debt or equity-oriented funds, you can benefit during any market cycle. Moreover, your source fund is (at the same time) continuing to generate returns. Which means, your investment is constantly creating and compounding wealth.

These plans give you the option to re-balance your portfolio based on your financial goals. You can transfer out to equity-oriented funds when you need to achieve short-term goals and transfer out to debt when you need savings for the long-term.


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