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What is STP

What is STP
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STP refers to Systematic Transfer Plan wherein you can invest a lump sum amount in one scheme and / or regularly transfer a predefined amount from that scheme into another designated scheme.

This process is generally automated and takes place periodically as per the instructions you give to the fund house. In case of a volatile market, STP helps investors periodically transfer funds from one scheme (source scheme) to another (target scheme). This minimise formalities and paperwork.

In STP, you already have a lump sum that you wish to invest. This lump sum must start working as soon as possible. However, since you also seek to make market volatility work in your favour, you can stagger your investment by putting your money in a liquid fund and then periodically moving it into any fund. In this case, you can choose to first invest in a liquid fund. Hence it’s better to not stagger your investments for too long and finish the transfer in a short period of time (generally around six months is preferred).

The downside to STP is the possibility of your fund charging an exit load. Examine whether the fund you are invested in charges an exit load. Exit loads change from fund to fund. Furthermore, transferring your proceeds from fund to fund should not be carried out without proper market research and due diligence. It can be helpful if you consult a financial advisor regarding advice on how to do so, seeking to use the volatility of the market in your favour.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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