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Imagine if you are holding an investment for over a year and you have yet didn’t get any returns, what do you do? Some of you might directly pool their investment and some will continue their investment. But are you aware of the concept which gives the facility to transfer your mutual units from one fund to another fund? We call this concept a Systematic Transfer Plan (STP).

In this blog, we will see detailed information about what STP is, the types of STP, how it works, and its benefits.
 

What is STP?

STP stands for Systematic Transfer Plan. This is a facility where you can move your investment from one mutual fund to another in the same mutual fund company. Through this, you can take advantage of market opportunities.
 

How does a Systematic Transfer Plan work?

Suppose you have invested in the debt fund of SBI Mutual Fund, and at the same time if there is an opportunity in the equity market, then you can invest in the equity fund of SBI Mutual Fund.

But this facility can be up to a certain number of units, and this decision depends on the fund company. When you exit one fund and convert your unit into another fund, you will face exit load charges.

Types of STP

1. Fixed Straight Through Processing

In this type, investments are transferred from one fund to another fund for a fixed period and fixed amount.
Example: Invest Rs. 20,000 every month from a bond fund to an equity fund.

2. Flexible Straight Through Processing

In this type, there are no conditions for plan transfer. You can transfer investments based on market conditions.

3. Systematic Transfer of Capital Plan

In this type, the income of one fund is invested in another fund.
 

Features of Systematic Transfer Plan (STP)

1. Higher Returns:
   Through STP, you can take advantage of the opportunities offered by equity funds. Equity funds have higher risks and higher returns. If the market is strongly bullish then you can go for an equity mutual fund and similarly, when the situation like the market is falling, and the economy is not performing well then a debt or bond fund will be the best option for investment.

2. Volatility:
   When there is more volatility in the market, then we can go for debt funds.

3. Fees:
   Most mutual funds do not have entry loads, but when we exit a fund, an exit fee is charged.

4. Balancing:
   By taking advantage of both equity funds and debt funds according to the market conditions, we can finally achieve a good balance in your overall investment.

Conclusion

The concepts of SIP, SWP, and STP are important for every mutual fund investor. Investors can take advantage of opportunities in equity funds, hybrid funds, and debt funds using STP. Every mutual fund investor should know the market or the funds that have STP facilities before using STP.

FAQ on STP

1. Is there any tax on STP?
Ans: Through STP, units of one fund are purchased and then another fund is purchased. Exit load is levied on the purchased fund.
 

2. What is the biggest disadvantage of STP?
Ans: Exit load is levied on STP (Systematic Withdrawal Plan) up to 2%. Therefore, the biggest disadvantage of STP is the exit load.
 

3. What are the types of STP?
Ans: Fixed STP, Capital Appreciation STP, and Flexible STP are the main types of STP.
 

4. Can I ever close the STP facility?
Ans: You can decide to close or continue the STP period, amount or STP as per the approval of the mutual fund company.
 

5. What is the difference between SIP and STP?
Ans: SIP is a mechanism for initiating investment, in which the investor invests at his convenience. STP is a facility to convert units from one fund to another.