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Systematic Transfer Plan: Meaning, Process and More

Updated on :  

08 min read.

Investors are getting more reluctant each day making lump sum investments because of the potential risks that come attached to it. This is why financial experts recommend Systematic Transfer Plans to mitigate risks. We have covered the following in this article:

What are Systematic Transfer Plans (STP)?

Almost every investor is aware of Systematic Investment Plans (SIPs). But what about Systematic Transfer Plans or STPs? Unlike SIP, Systematic Transfer Plan may not be a term many investors are aware of. While SIP is the transfer of money from a savings bank account to a mutual fund plan, STP means transferring money from one mutual fund plan to another. STP is a smart strategy to stagger your investment over a specific term to reduce risks and balance returns.

For instance, if you invest ‘systematically’ in equities, you can earn risk-free returns even when the markets are volatile. Here, an AMC permits you to invest a lump sum in one fund, and transfer a fixed amount to another scheme regularly. The former fund is called source scheme or transferor scheme, and the latter is referred to as the target scheme or destination scheme.  

How to Start a Systematic Transfer Plan?

STP is a useful tool in mutual funds to average your investment over a specific period. To decide on whether one should do an STP or lump sum depends on three factors – an investor’s current allocation to equities, the risk profile of the investor and finally, the market view. For instance, to invest Rs.1 lakh in an equity fund using STP, you may first select either an ultra short-term fund or a liquid fund.

After that, decide on a fixed amount that you want to transfer daily, weekly, monthly, or quarterly. Hence, if you choose to move Rs.20,000 every three months, it will take five quarters (15 months) to complete the investment. Earlier, fund houses allowed only debt to equity fund transfer within the same company. Now, you can transfer from an equity fund of one AMC to that of another.

Features of a Systematic Transfer Plan

Minimum Investment

TThere is no standard minimum investment amount to invest in the source fund. However, some AMCs insist on a minimum amount of Rs.12,000 in their systematic transfer plans.

Entry & Exit load

To apply for an STP, you need to do at least six capital transfers from one mutual fund to another. While you are free from entry load, SEBI allows fund houses to charge exit load. However, the exit load cannot exceed 2%.

Disciplined & Lucrative

Systematic Transfer Plan (STP) enables a disciplined and planned transfer of funds between two mutual fund schemes. In most cases, investors initiate an STP from a debt fund to an equity fund.

Taxation on STPs

While an STP is a good strategy, you should be aware of the tax implications and exit loads on the transfer. Every transfer from one fund to another is considered as redemption and new investment. The redemption is usually taxable. The money transferred within the first three years from a debt fund is subject to short-term capital gains tax (STCG). But even with this tax aspect, the returns earned would be higher than those in a bank account.

STP

How Can an Investor Benefit From STP?

Scope for Higher Returns

If you opt for STP instead, you tend to generate higher returns. It is because, for an STP, you will be initially investing the lump sum in a debt fund like a liquid fund. Liquid funds are known to yield higher returns in the range of 7%-9% as compared to the mere 4% returns earned in a savings bank account.

Earning Steady Returns

The returns made via STP are pretty reliable. This is because the amount in source fund (debt fund) generates interest until you transfer the entire amount.

Managing Risks

An STP can also be used to move from a risky asset class to a less risky asset class. For instance, say, you initiated a SIP for 30 years into an equity fund for retirement planning. As you approach your retirement, you can start an STP to prevent loss of fund value. Here, you instruct the fund house to transfer a fixed amount from the equity fund to a debt fund. In this way, by the time you retire, you would have moved all the accumulated corpus to a safer haven.

Rupee Cost Averaging

Systematic Transfer Plans averages out the cost of investment by buying lesser units at higher NAV and more units at a lower price. As your money gets transferred from one fund to another, the fund manager would keep purchasing additional units systematically. Hence, you will get the benefit of rupee cost averaging, i.e. the per-unit cost of investment will reduce gradually.

Re-balancing Portfolio

Your portfolio should strike a balance between debt and equities. An STP re-balances the portfolio by moving investments from debt to equity funds or vice versa.

Who Should Invest via Systematic Transfer Plans?

STP is an excellent choice for those looking to invest a lump sum but is not ready to do that at one go. This could be because they are risk-averse and do not want to get tangled in the market volatility. They may also be wary of equities as a rule. Such investors can opt to invest in liquid or debt funds. When this money gets transferred to an equity fund, you get the fixed returns from the debt funds as well as potential returns from the equity scheme.

What are the Types of Systematic Transfer Plans?

Fixed STP

Here, the amount and frequency of transfer are fixed. Investors can decide on this amount as per their financial goal and apply for the same.

Capital Appreciation

For this kind of STP, only the capital appreciated is transferred from source fund to the destination fund, and the capital part remains safe.

Flexi STP

As the name suggests, Flexi STP is flexible. This means you can choose to transfer a varied amount from the source fund to the target fund. Investors generally want the amount as per the market rate fluctuations. For instance, if the Net Asset Value of the destination fund dips, then you can increase the amount and vice versa.

Things to Remember While Investing via STP

  • Go for STP only if you have a lump sum amount to invest which you might not need in the immediate future.
  • Though the fund house decides the minimum investment, you need to make at least six STPs as per the SEBI norms.
  • STP is one of the most reliable risk-reducing strategies that investors can adopt. However, they cannot eradicate risks. You can also expect a reduction in returns if the market is low.
  • This method requires discipline. Suppose, if you opt-out of a plan just because there is a market fluctuation or change in the rates, then the purpose will behind opting for it will not be served.
  • Always keep an eye on the underlying assets and their phases. For instance, it would be irrational to transfer capital, when the market is moving to the peak. In short, STP is a useful strategy to manage risks without affecting your returns significantly.

In short, STP is a useful strategy to manage risks without affecting your returns significantly. ClearTax Invest offers you handpicked funds from the top fund houses in the country. If you want to invest through a systematic transfer plan, then you can choose one of the plans that suit your requirements. Start investing now!  

Frequently Asked Questions

How to invest in mutual funds in India?

You can invest in mutual funds directly with the asset management company (AMC) through the direct plan. You must complete your KYC at a KRA (KYC Registration Agency) online by filling the KYC registration form and uploading the self-attested identity proof such as PAN Card and address proof such as Passport/Driving License/Voter ID and also a passport size photograph. You will also have to complete the IPV (In-Person Verification).

You may also invest in mutual funds through a mutual fund distributor by opting for a regular plan. The mutual fund house would pay a commission to the mutual fund distributor or the intermediary. You may invest in mutual funds offline by visiting the mutual fund house and filling up the application form and submitting documents for KYC compliance.

How to invest in mutual funds online in India?

You may invest directly with the mutual fund house through the direct plan. You just have to visit the website of the fund house and fill up your relevant details such as name, email id, mobile number and bank details.

You may complete the KYC online through eKYC where you enter the Aadhaar and PAN details. Your information would be verified at the backend and you may start investing in mutual funds after transferring money online from your bank account.

You may also invest through an online platform such as cleartax invest

  • You must log on to cleartax invest
  • You then select the mutual fund house from the list of fund houses
  • Pick the mutual fund scheme based on your investment objectives and risk tolerance and click on Invest now
  • You must select the amount you plan to invest in the mutual fund scheme and the mode as either One Time or Monthly SIP.
  • You must fill up the requisite details such as name, email ID, mobile number and complete the transaction.
How to invest in mutual funds for beginners in India?

You must choose the appropriate mutual fund scheme based on investment objectives and risk tolerance, if you are a beginner in mutual funds. You may invest in mutual funds online or offline as per your convenience.

You may invest in mutual funds offline in a direct plan of a mutual fund scheme by visiting the branch of the fund house. You can invest in a regular plan through a mutual fund distributor.

You may invest in direct plans of mutual funds online by visiting the website of a fund house. You may complete your eKYC for KYC (Know Your Customer) compliance by submitting Aadhaar and PAN details and then invest in the scheme of your choice. You could complete your KYC at a KRA (KYC Registration Agency) before investing in mutual funds.

How to invest in mutual funds without a Demat account?

You may invest in mutual funds directly with the mutual fund house by visiting the branch of the AMC. You just have to fill up the application form and submit the self-attested identity and address proof for KYC compliance.

You may submit the cheque for the initial amount and you are allotted a PIN and folio number. You can also approach a mutual fund distributor and invest in the regular plan of the mutual fund.

You may invest in a direct plan of a mutual fund online through an AMC. You must fill up the registration form and complete your eKYC by submitting PAN and Aadhaar details. You may also invest in an online portal such as cleartax invest.

How to invest in mutual funds directly?

You may invest in mutual funds directly by visiting the office of the mutual fund house. You must submit your self-attested identity and address proof along with the filled application form and passport size photographs for KYC-compliance. Make a cheque for the first investment and invest in the mutual fund scheme of your choice.

How to invest in direct mutual funds online in India?

You may invest in direct mutual funds online by visiting the website of the mutual fund house. You may fill in the application form and complete your eKYC by submitting your PAN and Aadhaar details.

The AMC would verify your details and you may invest through your online bank account. You may invest in direct mutual funds online in India through the online portals such as cleartax invest.

How much to invest in mutual funds per month?

You may invest in a mutual fund scheme through a systematic investment plan or SIP. It is a method of investing in a mutual fund where you invest a fixed amount regularly in a mutual fund scheme of your choice. You may invest as low as Rs 500 per month through the SIP in the mutual fund scheme of your choice.

How to invest in mutual funds without a broker?

You may invest in a direct plan of a mutual fund either offline or online directly through the asset management company or AMC. You may visit the branch of the fund house and fill up the mutual fund application form and submit the self-attested identity and address proof along with a passport size photograph to complete your KYC.

You may invest in a direct plan of a mutual fund online by visiting the website of the AMC. You may fill the mutual fund application form with required details such as name, bank details and complete your eKYC by submitting your PAN and Aadhaar details. You may invest in mutual funds through your online bank account.

You may invest in mutual funds through an online portal such as cleartax invest.

  • Log on to cleartax invest
  • Select the mutual fund house from the list of fund houses
  • Pick the mutual fund scheme based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the mutual fund scheme and the mode as either One Time or Monthly SIP.
How to invest in equity mutual funds?

You may invest in a direct plan of an equity fund directly through the asset management company (AMC). You may visit the branch of the fund house and fill up the mutual fund application with required details such as name, mobile number and bank details.

Complete your KYC by submitting the self-attested identity and address proof and submit passport size photographs. You may submit the cheque for the initial amount and you are allotted a PIN and folio number. You can also approach a mutual fund distributor and invest in the regular plan of the mutual fund.

You may invest in equity funds online by visiting the website of the mutual fund house. You may fill in the application form online and complete eKYC with PAN and Aadhaar details. Start investing in the mutual fund scheme with your online bank account.

You may invest in equity mutual funds directly through an online portal such as cleartax invest.

How to invest in mutual funds through SIP online?

You must first complete your KYC before investing in a mutual fund. You may do so at a KRA (KYC Registration Agency) online by filling the KYC registration form and submitting the self-attested identity and address proof.

  • You then visit the website of the fund house and choose the mutual fund scheme of your choice.
  • You may fill an application form with required details such as name, mobile number, PAN and create a username and password.
  • You then enter your bank account details and set up the SIP auto-debit amount.
  • You may log on to your account created at the fund house and choose the mutual fund scheme.
  • You must make the first SIP instalment online and the next instalment after 30 days. (The AMC will intimate you on the requisite date).
  • You may continue the SIP till the end of the chosen tenure. (You may decide the tenure of the SIP).
What are mutual funds and how to invest in them?

Mutual funds are a professionally managed investment where the money is pooled by several investors and used to purchase securities. It may invest your money in equity, debt or a mix of both equity and fixed income depending on the type of mutual fund.

You may invest in the direct plan of mutual funds directly through the AMC both offline and online. You may also invest in mutual funds through a mutual fund distributor.

How to invest in US mutual funds in India?

You may invest in US mutual funds through fund of funds (FoFs) schemes with a mutual fund house in India. It is an indian mutual fund scheme that invests in US- based active equity mutual funds. However, they have a higher expense ratio as compared to most equity schemes. You may also invest in indian equity schemes whose portfolio mimics a US stock market index such as S&P 500 or the Nasdaq 100.

You may invest in these fund of funds schemes through an asset management company in India. You could consider completing your KYC before investing in US mutual funds from India.

How to invest a lump sum in mutual funds?

You may invest a lump sum amount in a mutual fund through a direct plan with the asset management company. You could opt for the offline or online mode of investment. You must complete your KYC by submitting a self-attested identity and address proof along with passport size photographs at the branch of the mutual fund house.

You could invest a lump sum amount in mutual funds through an online platform such as cleartax invest. You just have to log on to cleartax invest and select the mutual fund house and the scheme. You then select the amount and the mode of investment as One Time if you want to put a lump sum amount in a mutual fund.

How to invest in mutual funds through demat account?

You may invest in mutual funds through a demat account with your stock broker or through any depository participant. The mutual fund units would be held in the dematerialised form. You can buy and sell mutual fund schemes through your demat account just like shares. It is a dematerialised account which can hold stocks, mutual funds and other securities.

  • Open a demat and trading account with a stock broker
  • You can buy and sell units of mutual fund schemes

However, charges are higher as compared to other modes of investing in mutual funds.

How to invest in debt mutual funds?

You may invest in direct plans of debt funds directly with an AMC. You could visit their branch office and fill the application form. You then complete the KYC by submitting the self-attested identity and address proof and passport size photographs.

You may invest in direct plans of debt mutual funds online by visiting the website of the AMC.

  • Create an account with the AMC
  • Complete your eKYC by submitting PAN and Aadhaar details
  • Specify the amount you want to invest and the frequency of your investment

You may give online instructions to your bank to transfer the requisite amount to the fund house on a specified date. You may invest in debt funds through an online platform such as cleartax invest. You have to log on to cleartax invest and pick the mutual fund house and the debt scheme. You then select the amount and the mode of investment as One Time or SIP to commence investing in the debt fund.

How to invest in elss mutual funds online?

You may invest in regular plans of ELSS through a mutual fund distributor. You can invest in the direct plan of the ELSS mutual fund online directly with an AMC. You must create an account with the AMC. Fill up the application form with personal details such as name, mobile name and so on.

You may complete your eKYC by submitting your PAN and Aadhaar details. You may give online instructions to your bank to transfer the requisite amount to the fund house on a specified date and start investing in the ELSS mutual fund.

You may invest in ELSS mutual funds online through online platforms such as cleartax invest.

  • Log on to cleartax invest.
  • You must pick the mutual fund house from the list of fund houses
  • Select the ELSS mutual fund scheme based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the ELSS mutual fund scheme and the mode as either One Time or Monthly SIP.
How to invest Rs 500 in mutual funds?

You may invest in direct plans of mutual funds either online or offline. You must complete your KYC before investing in mutual funds. However, you may invest in regular plans of mutual funds through a mutual fund distributor.
You may consider investing just Rs 500 per instalment in an SIP of a mutual fund. It is a method of investing regularly in a mutual fund scheme of your choice.

How to invest in large cap mutual funds?

You may invest in direct plans of large cap mutual funds either offline or online by investing directly with the AMC. Complete your KYC by submitting self-attested identity and address proofs or eKYC for online mode. You could invest in regular plans of large cap mutual funds through a mutual fund distributor.

You may invest in large cap funds through online platforms such as cleartax invest.

  • Log on to cleartax invest.
  • You must opt for the mutual fund house from the list of fund houses
  • Select the large cap mutual fund based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the large cap fund and the mode as either One Time or Monthly SIP.
How to invest 1 crore in mutual funds?

You may invest Rs 1 crore in a direct plan of a mutual fund. You may invest online or offline directly with the AMC. However, you must complete your KYC before investing Rs 1 crore in the mutual fund.

You may invest Rs 1 crore in mutual funds through an online platform such as cleartax invest. You just have to log on to cleartax invest and select the mutual fund house and the scheme. You then select the amount and the mode of investment as One Time if you want to put a lump sum amount in a mutual fund.

However, it would be prudent to invest in mutual funds through SIP instead of putting Rs 1 crore through a one time investment. It is a method of investing small amounts regularly in a mutual fund scheme of your choice.

How to invest in money market mutual funds in india?

You may invest in direct plans of money market mutual funds either offline or online by investing directly with the AMC. You must complete your KYC by submitting self-attested identity and address proofs. You must complete eKYC for the online mode of investing in money market mutual funds by submitting PAN and Aadhaar details. You could invest in regular plans of money market funds through a mutual fund distributor.

You may invest in money market mutual funds through online platforms such as cleartax invest.

  • Log on to cleartax invest.
  • You must opt for the mutual fund house from the list of fund houses
  • Select the money market mutual fund from the category of debt funds based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the money market mutual fund and the mode as either One Time or Monthly SIP.
How to invest in STP mutual funds?

A systematic transfer plan or STP allows you to periodically transfer (switch) a certain amount of units from one mutual fund scheme to another mutual fund scheme of the same mutual fund house. You may consider an STP from an equity scheme to a debt scheme or vice versa depending on the market conditions.

You may invest in STP in mutual funds through the following steps:

  • You may fill up your STP form and submit it at the office of the AMC. You could fill this form online at the website of the mutual fund house.
  • Select the mutual fund scheme (destination fund) where you intend to invest for the long-term.
  • You may then select the mutual fund scheme (source fund) where you want to invest the lump sum amount.
  • You may choose the time-frame from where the lump sum amount invested may be moved to the destination fund. You can choose daily, weekly or monthly STPs according to your convenience.
How much money do you need to invest in mutual funds?

Systematic Investment Plan or SIP is a method of investing in mutual funds. You may invest a fixed amount regularly in a mutual fund scheme of your choice. You can invest just Rs 500 per instalment in a mutual fund through the SIP.

How to invest in mutual funds in the name of minors?

You can invest in mutual funds in the name of a minor child. The minor child is the sole holder in the mutual fund folio. The guardian for the mutual fund folio must be a parent or a court-appointed guardian.

  • You may approach the branch of an AMC.
  • Submit documents showing the child’s date of birth such as passport or birth certificate while opening a mutual fund folio. You also need documents to establish the relationship between the minor child and the parent/guardian. (For parent it could be the passport and for the guardian it is the copy of the court order)
  • The parent/guardian must be KYC-compliant to invest in mutual funds in the name of minor child
  • You can even register an SIP or STP instruction in the mutual fund folio of a minor child. However, it would cease once the minor child turns 18 years of age.
How to invest in mutual funds for the short term?

You may consider investing in mutual funds depending on investment objectives and risk tolerance. Invest in debt funds to meet your short-term financial goals. You can invest offline or online in direct plans of debt mutual funds with the mutual fund house.

However, you may invest in regular plans of debt funds through a mutual fund distributor. You can invest in debt funds through an online platform such as cleartax invest.

How to invest Rs 10,000 in mutual funds?

You can invest in mutual funds offline or online through a mutual fund house or an intermediary (broker). You may also invest in mutual funds through an online platform such as cleartax invest.

  • Log on to cleartax invest to put Rs 10,000 in mutual funds
  • You must opt for the mutual fund house from the list of fund houses
  • Select the mutual fund scheme based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the mutual fund and the mode as One Time to invest Rs 10,000 in mutual funds.
How to invest in gold through mutual funds?

You may invest in Gold ETFs or gold funds either online or offline directly with a mutual fund distributor. You can also invest in these funds with the help of a mutual fund distributor.

However, you may consider investing in gold funds or Gold ETFs through the SIP route. You may invest just Rs 500 per instalment. You can invest in Gold ETFs and gold funds through online platforms such as cleartax invest.

How to invest in mutual funds for retirement?

You may invest in equity funds or ELSS mutual funds for retirement. You must invest in equity funds for the long-term to achieve long-term financial goals such as retirement planning.

You may invest in direct plans of equity funds and ELSS through an asset management company. However, you could consider investing through a broker for regular plans of these mutual funds.You could invest in equity funds and ELSS through online platforms such as cleartax invest.

How much to invest to get 3,00,000 in 3 years in mutual funds?

You may invest a lump sum amount in mutual funds or even through the SIP route. You can invest just Rs 500 per instalment in the mutual fund scheme of your choice through the SIP. Consider using ClearTax Mutual Fund Returns Calculator to determine how much to invest to get Rs 3,00,000 in 3 years.

How to invest in mutual funds in Canada?

You may consider investing in a fund of funds that puts money in Canadian mutual funds. You may approach a mutual fund house which offers the requisite facility.

How to invest in International Mutual Funds?

You may invest in International Mutual Funds directly through an AMC in India. It is an Indian mutual fund scheme which invests in stocks of foreign companies. However, you may consider the fund of funds schemes which invest in foreign mutual funds or whose portfolio mimics a stock market index such as the Nasdaq 100 or S&P 500.

You can invest in International Mutual Funds through an online platform such as cleartax invest.

  • Log on to cleartax invest
  • You must opt for the mutual fund house from the list of fund houses
  • Select the International Mutual Fund under the category ‘Equity’ based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the mutual fund and the mode as One Time or SIP.
How to invest in mutual funds as a student?

You can easily invest in mutual funds if you are a student above 18 years of age. You may invest in direct plans of mutual funds through the AMC. You can also invest in regular plans of mutual funds through a broker.

However, you must complete your KYC by submitting a self-attested identity and address proof and passport size photographs at the branch of the mutual fund house. You may complete eKYC online by submitting your PAN and Aadhaar details before investing in mutual funds.

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