STP in mutual funds is a clever tool for Indian investors. Short for Systematic Transfer Plan, it helps move money between funds smoothly. How does it work? Let’s dive into the details.
What Is STP in Mutual Funds?
Systematic Transfer Plan (STP) is a popular investment strategy in mutual funds, especially in India. It lets you transfer a fixed amount from one fund to another over time. You start with a lump sum in a source fund—often debt—then shift it to a target fund, like equity. For example, ₹1 lakh in a debt fund can move ₹10,000 monthly to an equity fund. It’s a middle ground between SIP and lump-sum investing.
How Does STP Work?
The process of STP is quite simple. An investor initially invests a lump sum amount in a low-risk debt fund, which provides stable returns. Then, the investor sets up a systematic transfer to an equity mutual fund over a fixed period, often monthly or quarterly. This strategy helps to spread the risk of investing in equities and reduces the impact of market volatility, offering a smoother transition into riskier assets.
Benefits of STP:
- Gradual Investing: A major perk of STP in mutual funds is reducing market risk. Instead of dumping cash into equities at once, you spread it out. This mimics rupee cost averaging, buying more units when prices dip. Equity funds averaged 12-15% returns over a decade, per SEBI data, and STP maximizes this. In addition, it’s great for volatile markets.
- Flexibility and Tax Perks: STP in mutual funds offers flexibility—you choose the amount, frequency, and funds. Tax depends on the source fund: debt fund transfers follow slab rates, while equity gains over ₹1 lakh face 10% LTCG. Moreover, mutual fund assets hit ₹50 lakh crore in 2023, per IBEF, reflecting their growth.
Is STP Right for You?
STP can be an ideal strategy for conservative investors who want to balance between the safety of debt funds and the growth potential of equity. It is also suitable for investors who wish to avoid timing the market. However, it’s important to note that STP still involves market risk, and it may take time to see significant returns.
Conclusion:
STP in mutual funds is an excellent strategy for systematic investments, helping Indian investors reduce risk while growing wealth over time. By making regular transfers from one scheme to another, you can diversify your portfolio and manage your investments better. Explore more mutual fund strategies to build your investment portfolio today!
– Ketaki Dandekar (Ream Arthology)
Read more about STP in Mutual Funds here – https://groww.in/systematic-plan