What is STP in Mutual Funds?

What is STP in Mutual Funds?

Are you looking to make the most out of your investments? Look no further than Systematic Transfer Plans (STPs) in Mutual Funds. Whether you’re an experienced investor or just getting started, STPs offer a clever and strategic way to invest, helping you navigate the market’s highs and lows while still enjoying the rewards.

But what is STP in mutual funds? How does it work? And most importantly, how can you leverage this powerful investment tool? In this blog post, we’ll deeply dive into all things STP in Mutual Funds, exploring its perks, various types, and eligibility criteria and providing step-by-step instructions on setting up your very own STP. So, kick back, relax, and get ready to uncover a game-changing strategy that will revolutionize your approach to investing!

What is STP in Mutual Funds?

What is STP in Mutual Funds?

STP, or Systematic Transfer Plan, is an investment strategy by mutual fund companies. It lets investors regularly transfer a fixed amount or units from one mutual fund scheme to another. The goal is to provide asset allocation benefits, allowing a gradual shift in investments based on changing goals or market conditions.

STP offers flexibility in transfer frequency and duration. It employs rupee-cost averaging to mitigate the risk of investing a lump sum at a single point. Specifics can vary, so investors should review the fund’s offer document and consult the mutual fund company before starting an STP.

How Does STP Work?

STP, or Systematic Transfer Plan, is a valuable tool in mutual funds, offering a smart way to navigate market fluctuations. To decide between STP and lump-sum investment, investors should consider their asset portfolio, risk profile, and market outlook. In the current market, where indices are at new highs, STP can be a wise choice.

For example, if you have ₹10 lakh from asset sales, you can invest it in an equity fund through STP over 20 months. Choose a debt fund that supports STP, invest the ₹10 lakh, and decide on the monthly transfer amount, such as ₹50,000 in this scenario.

By effectively using STPs based on individual circumstances and market conditions, investors can maximize returns and manage risks more efficiently. Consider exploring this method for smarter investment strategies.

How to Calculate STP in Mutual Fund?

what is stp in mutual funds

Calculating the transfer amount for a Systematic Transfer Plan (STP) in a mutual fund is a relatively simple process.

All you need to do is use the following formula:

Transfer Amount = Total Investment Amount / Number of Transfer Periods

Let’s break down the variables:

  • Total Investment Amount: This refers to the total amount that you want to transfer from one mutual fund scheme to another through the STP.
  • Number of Transfer Periods: This represents the total number of transfers you plan to make from the source fund to the target fund. For example, if you intend to make monthly transfers for a year, then the number of transfer periods would be 12.

By dividing the total investment amount by the number of transfer periods, you can determine how much must be transferred at each interval. It’s important to note that this formula assumes an equal transfer amount for each period.

If you wish to have varying transfer amounts, adjust or modify this formula accordingly. In such cases, consulting with your mutual fund provider is advisable, as they may have specific calculations or rules pertaining to STP.

Remember, understanding and calculating STP in mutual funds are crucial steps toward effectively managing your investments and achieving financial goals.

Benefits of STP for Investors

Systematic Transfer Plans (STP) in mutual funds offer key benefits for investors:

  1. Risk Management: Gradual fund transfers help manage risk by avoiding sudden market fluctuations and reducing the impact of volatility.
  2. Rupee Cost Averaging: STP allows investors to benefit from rupee cost averaging, buying more units when prices are low and fewer units when prices are high, thereby lowering the average cost per unit over time.
  3. Flexibility and Convenience: Investors can choose transfer frequency and amount based on their goals, with options for daily, weekly, monthly, or quarterly transfers.
  4. Tax Efficiency: STP may provide tax benefits by utilizing long-term capital gains taxation rates when transferring funds from a debt fund to an equity fund over time.
  5. Diversification: STP enables portfolio diversification across different asset classes or sectors while maintaining a disciplined investment approach.

In summary, STPs offer advantages such as risk management, rupee cost averaging, flexibility, tax efficiency, and portfolio diversification for investors.

Types of Systematic Transfer Plans

Types of Systematic Transfer Plans

When it comes to investing in mutual funds, one popular strategy is the Systematic Transfer Plan (STP). This method allows investors to transfer their funds from one scheme to another systematically over a period of time. Within the realm of STP, there are different types that cater to varying investment needs and goals.

  1. Flexible STP: This type of STP allows investors to have flexibility in terms of transfer amounts and frequencies. Investors can choose the amount they want to transfer and at what intervals. It gives investors greater control over their investment strategy.
  2. Fixed STP: In contrast to flexible STP, fixed STP follows a predetermined set of rules for transferring funds. Both the transfer amount and frequency are fixed from the beginning. This provides a more structured approach, which may be suitable for investors who prefer stability and consistency in their investments.
  3. Capital Systematic Transfer Plan (CSTP): This plan focuses on capital preservation while still allowing for potential growth. Investors gradually move their investments from equity-oriented schemes to debt-oriented schemes as they approach specific milestones or target dates. This strategy is often used when investors want to safeguard their capital in the later stages of investment.

Each type of STP has its own advantages and considerations depending on an investor’s risk tolerance, financial goals, and market outlook. It’s important for individuals to thoroughly assess their options before choosing a systematic transfer plan that aligns with their investment objectives.

Eligibility to Invest in a Systematic Transfer Plan?

Systematic Transfer Plans (STP) in mutual funds provide an entry point for investors with limited resources to gradually tap into the potential high returns of the stock market. Serving as a secure transition into the equity market, STPs act as a safeguard during market instability by reinvesting funds in safer securities like debt instruments.

The eligibility criteria for STPs are inclusive, catering to both seasoned and novice investors, allowing them to enter the world of mutual funds at their own pace. Through STP, investors benefit from dollar-cost averaging, spreading investments over time to mitigate timing risks and smooth out market volatility.

This strategy offers an attractive proposition for individuals seeking higher returns while effectively managing risk, making it an ideal choice for strategic moves within an investment portfolio without compromising on stability and security.

How to Invest in STP in Mutual Funds?

How to Invest in STP in Mutual Funds

To invest in STP (Systematic Transfer Plan) in mutual funds, you can follow these steps:

  1. Understand your investment goals: Determine your investment objectives, risk appetite, and time horizon. This will help you select suitable mutual fund schemes for your STP.
  2. Choose the source and target funds: Select the mutual fund scheme from which you want to transfer funds (source fund) and the scheme to which you want to transfer the funds (target fund). Consider factors such as historical performance, asset allocation, risk profile, and investment strategy of the funds.
  3. Complete the application form: Obtain the application form for the mutual fund company offering the STP facility. Fill in the required details accurately, including personal information, investment amount, source and target fund details, and frequency of transfers.
  4. Submit the application form: Submit the completed application form along with the necessary documents, such as KYC (Know Your Customer) verification documents, proof of identity, proof of address, and bank account details. Ensure all documents are correctly filled out and signed.
  5. Fund your investment: Transfer the initial investment amount into the source fund either through a lump sum investment or by linking your bank account for periodic transfers.
  6. Set up the STP: Specify the details of the STP in the application form, such as the transfer frequency, transfer amount, start date, and end date, if applicable. Ensure that you adhere to the minimum investment amounts and other requirements set by the mutual fund company.
  7. Review and monitor your investment: Regularly review the performance of both the source and target funds. Monitor the progress of your STP and make any necessary adjustments based on your investment goals and market conditions.

It’s worth noting that the specific process for investing in STP may vary slightly among different mutual fund companies. It is always recommended to read the fund’s offer documents carefully, consult with a financial advisor, or contact the customer support team of the mutual fund company for accurate and detailed instructions related to their specific STP investment process.

Factors to Consider Before Opting for STP

Factors to Consider Before Opting for STP

A systematic transfer plan (STP) is a long-term investment scheme that demands realistic expectations from investors, as it doesn’t guarantee instant massive returns. It’s imperative for investors to grasp market trends and patterns and understand asset value performance and fluctuation mechanisms to maximize yields. Considerations like exit loads and tax deductions are crucial when calculating expected returns, as the security of the principal amount relies on the performance of the respective Mutual Funds.

While STPs offer exposure to lower market risks, complete risk elimination is not guaranteed. Investors must acknowledge the inherent risks associated with any investment. Eligibility for investing in systematic transfer plan Mutual Funds requires individuals to make at least six transfers among different schemes as mandated by SEBI (Securities Exchange Board of India).

By weighing these factors before opting for an STP, investors can make informed decisions, aligning their investments with realistic expectations and potentially achieving their financial goals over time without unexpected surprises.


In conclusion, STP (Systematic Transfer Plan) is a clever investment strategy from mutual funds, allowing fixed transfers between funds at regular intervals. This aids in portfolio diversification and risk reduction. With benefits like rupee cost averaging, disciplined saving, and tax advantages, STP suits both short-term and long-term goals. Investors can choose assets based on risk tolerance and time horizon. However, careful fund selection and regular portfolio reviews are essential. Overall, STP is a convenient and stable option, making it a popular choice for diverse investors seeking efficient wealth-building and risk management in their financial journey.

FAQs – What is STP in Mutual Funds?

Is STP better than SIP?

The choice depends on your goals. If you want to enter the market or manage risks gradually, a Systematic Transfer Plan (STP) is suitable. For consistent long-term wealth building, a Systematic Investment Plan (SIP) is a better fit. It’s about your risk tolerance and financial objectives.

What is the minimum investment required for STP?

The minimum investment for STP actually varies among different Asset Management Companies (AMCs). However, most AMCs set a minimum threshold, often around Rs. 12,000. It’s always best to check with your specific AMC or platform to confirm their minimum requirement.

Can I switch between different funds using STP?

Yes, STP allows investors to switch between different funds within the same mutual fund house. It’s a feature that provides flexibility in managing investments based on changing market conditions or financial goals.

Are there any penalties for modifying STP instructions?

Penalties for modifying STP instructions depend on the mutual fund company’s policies. Some may have specific charges for altering STP details. It’s crucial to review the terms and conditions of the particular fund and consult with the fund manager if needed.

How often can I change the transfer amount in STP?

The frequency of changing the transfer amount in STP depends on the terms set by the mutual fund company. Investors should refer to the fund’s documentation for details on how often adjustments can be made to the transfer amount.

Is STP suitable for all types of investors?

STP can be suitable for various investors, including both conservative and aggressive risk profiles. It provides flexibility, allowing investors to navigate market volatility and manage risk. However, suitability depends on individual financial goals, risk tolerance, and investment preferences. It’s advisable to consult with a financial advisor to determine if STP aligns with specific investment objectives.


This article is only for informational purposes and should not be considered financial advice. Always do thorough research before making any investment decisions.

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