What is STP in Mutual Funds?

STP or Systematic Transfer Plan in a mutual fund is a facility offered by a mutual fund that allows investors to transfer a fixed amount of money from one mutual fund scheme to another within the same fund house at regular intervals. So this transfer is made from a debt or liquid fund to an equity fund. Here we will explore more what is STP in mutual funds.

Key Feature of STP

Here are the key features of STP:

They offer a minimum of six transfers of funds that are mandatory for the investor to apply for investment under this scheme.
Here, the exit load varies for each scheme, with a maximum of 2% applicable during the fund redemption or transfer.
The SEBI mandate has no minimum amount of investment to invest through a systematic transfer plan mutual fund.
Here, the entry load on a mutual fund is not applicable, but the exit load may be charged on each transfer made, depending on the exit load.
This Systematic Transfer Plan is tax-like any other mutual fund investment.

Types of STP in Mutual Funds

Here are the three types of STP in Mutual Funds:

Types
Fixed STP	The number of units is transferred at each interval, so the total amount to be transferred from one mutual fund to another will remain fixed.
Flexi STP	The amount you can vary based on the market conditions or predefined criteria. So the total funds to be transferred are determined by investors as and when the need arises.
Capital Appreciation STP	Here, only the capital appreciation gain from the sources scheme is transferred to the target scheme.

How Does STP Work?

Here, if you are investing INR 10 Lakhs in an equity fund through a Systematic Transfer Plan. First, you will have to select a debt fund that allows the Systematic Transfer Plan to invest in that specific equity fund. Now, once you select, then invest the whole amount, which is INR 10 lakh, in the debt fund. So you will have the option of transferring the money from the debt fund to the equity fund, along with selecting the appropriate frequency.

Conclusion

In conclusion, STP in mutual funds is a smart investment tool to gradually shift funds while minimizing risk and optimizing returns. So if you are a beginner or an expert investor, STP can help you manage the volatility. And it makes better use of your capital. We hope this blog has been helpful for you.

About the Author

Saniya

I am a writer, and this sentence speaks louder than anything, I love to play with words because I have a passion for writing easy and good-quality content that reflects simplicity. Readers like content that is straightforward with simple language. My priority has always been to deliver content that connects with the reader.

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