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A Systematic Transfer Plan (STP) allows investors to shift investments from equity schemes to debt schemes, or vice versa depending on market conditions
STP safeguards investors’ interests during market fluctuations, mitigating potential losses. (Representative/News18 Hindi)
A Systematic Transfer Plan (STP) is an investment strategy that enables investors to transfer funds from one mutual fund scheme to another at predetermined intervals. This automated process simplifies the transfer and allows investors to potentially benefit from market fluctuations by switching to securities offering higher returns.
Thus, it safeguards investors’ interests during market fluctuations, mitigating potential losses. Depending on market conditions, investors can opt for STP to shift investments from equity schemes to debt schemes, or vice versa.
A key advantage of STP is the expedited process of fund transfer and utilisation it offers. Investors benefit from the seamless and efficient distribution of available resources, as funds are automatically transferred between selected schemes.
However, an STP mutual fund can only transfer an investor’s financial resources between multiple funds managed by an asset management company. Switching between multiple schemes offered by different companies is not possible.
Types of Systematic Transfer Plans
Flexible STP: In this type of Systematic Transfer Plan, investors have the flexibility to determine the total sum to be transferred based on their immediate financial needs. Depending on prevailing market conditions and informed assessments of the scheme’s potential performance, an investor can opt to transfer a larger or smaller proportion of their existing funds.
Fixed STP: Under fixed STPs, the total amount to be transferred from one mutual fund to another is predetermined by the investor.
Capital Systematic Transfer Plan: This plan reallocates all gains accrued from market appreciation in one fund to a separate scheme poised for substantial growth.
Benefits of Systematic Transfer Plan
High Returns: Switching to more profitable ventures during market fluctuations allows one to increase returns on their investment. This strategy enables investors to capture market gains, maximising the benefit from securities bought and sold within the sector.
Taxation: Taxation concerns the degree to which investment returns are subject to tax. Various financial instruments, including mutual funds, savings accounts, and shares, carry distinct tax implications. These are determined by factors such as the holding period, the investor’s income level, and the applicable tax bracket.
Stability: During periods of heightened stock market volatility, investors can utilise STPs to transfer funds to more stable investment options, such as debt funds and money market instruments.
