Systematic Transfer Plan

Systematic Transfer Plan

A STP is an arrangement that enables financial specialists to offer agree to a common reserve to intermittently exchange a specific sum/switch (reclaim) certain units from one plan and put resources into another plan of the equivalent shared store house. Accordingly, at normal interims a sum/number of units you pick is exchanged starting with one shared store conspire then onto your preferred next. This office in this way helps in conveying assets at ordinary interims.

Features

Features of a Systematic Transfer Plan:

  1. Minimum Investment
  2. There is no standard minimum investment amount to invest in the source fund. However, some AMCs insist on a minimum amount of Rs. 12,000 in their systematic transfer plans.
  3. Entry & Exit load
  4. To apply for an STP, you need to do at least six capital transfers from one mutual fund to another. While you are free from entry load, SEBI allows fund houses to charge exit load up to 2%. The AMC calculates exit load based on investment tenure and fund type.
  5. Disciplined & Lucrative
  6. Systematic Transfer Plan (STP) enables a disciplined and planned transfer of funds between two mutual fund schemes. In most cases, investors initiate an STP from a debt fund to an equity fund.
  7. Taxation on STPs
  8. While an STP is a good strategy, you should be aware of the tax implications and exit loads on the transfer. Every transfer from one fund to another is considered as a redemption and fresh investment. The redemption is usually taxable. The money transferred within the first 3 years from a debt fund is subject to short-term capital gains tax (STCG). But even with this tax aspect, the returns earned would be higher than those in a bank account.

Types

A Systematic Transfer Plan is of three types; Fixed STP, Capital Appreciation STP and Flexi STP.

  1. Fixed STP
  2. In Fixed STP, the investor takes out a fixed sum of money from one investment to another.
  3. Capital Appreciation STP
  4. In Capital Appreciation STP, the investor takes the profit part out of one investment and invests in the other.
  5. Flexi STP
  6. In Flexi STP, the investor has a choice to transfer a variable amount. The fixed amount will be the minimum amount and the variable amount depends upon the volatility in the market. Thus, STP is particularly suitable to investors who have lump sum money and wish to invest in equity funds but are wary of timing the market. They can then choose to park the lump sum money in a liquid or debt fund and use the STP option to systematically transfer a fixed amount of money at regular intervals into the target equity fund.

Procedure

The financial specialist needs to choose a reserve from which the exchange should happen and a store to which the exchange is occurring. Exchanges can be made every day, week after week, month to month or quarterly relying on the STP picked and the choices accessible with the AMC.
In the event that a financial specialist exchanges from a fluid store to a value support, the singular amount is put resources into a fluid or a drifting momentary arrangement and is exchanged at customary interims to a predefined value finance. For instance, on the off chance that one has 50,000 to put resources into equity; he can put the whole sum in a liquid arrangement and go for a month to month SIP of 5,000 in an equity plan through a STP.
STPs can convey Exit Loads according to the particular plans of the AMC.

Advantages

  1. Reliable Returns
  2. Through STP, you can exchange your cash to an objective value support while you are put resources into an obligation or fluid store. Consequently, you will get the profits of the value finance you are moving into and in the meantime, stay ensured as a piece of your speculation stays paying off debtors.
  3. Averaging of Cost
  4. Like SIP, in STP as well, a fixed measure of cash is put resources into the objective store at standard interims. Since it is like SIP, STP helps with averaging out the expense of financial specialists by acquiring more units at a lower NAV and the other way around.
  5. Rebalancing Portfolio
  6. STP encourages in rebalancing the portfolio by assigning speculations from obligation to value or the other way around. On the off chance that your interest in the red builds cash can be reallocated to value assets through a STP and if your interest in value goes up cash can be changed from a value to an obligation finance.

FAQ's

After registering the STP, on the date and the frequency chosen by you; the STP installment amount will be switched out from the source scheme and will be invested into the target scheme in which you wish to invest.

Yes, to start Online STP you must have a minimum balance of Rs.5,000/- in the scheme you wish to invest from.

Online STP instructions will take 10 business days for registration with the registrar. The first STP transaction will be carried out only after the registration.

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