STP refers to systematic transfer plans, a systematic transfer plan allows investors to move their financial assets from one investment plan to another investment plan in a short time without any difficulty.
A systematic transfer plan enables investors to get profits from the dynamic market by switching to another plan where they get higher returns.
STP secures the goals of investors in fluctuating market by minimizing the loss or risks.
The primary advantage of STP is the easy transfer and utilization of funds because the money can be automatically adjusted between selected funds.
Types of Systematic Transfer Plan
Fixed STP – In a fixed systematic transfer plan, the total amount which has to be transferred from one mutual fund to another remains fixed. How much amount an investor wants to transfer one mutual fund plan to another that usually depends on the investor’s desire. He/She can transfer the amount as per their earning goals.
Capital appreciation STP – In a capital appreciation systematic transfer plan, the investor transfer that much amount to another plan in which He/She has earned a profit from the current plan. In simple words, only the profit part of the total amount has to be transferred to another plan to earn furthermore profits.
Flexible STP – In flexible systematic transfer plans, the total amount which has to be transferred is decided by an investor as per market conditions and predictions. An investor can transfer a high amount or low amount to another plan that usually depends on the investor’s earning targets and market volatility etc.
Features of systematic transfer plans
Most wealth management companies require approx. 12 thousand rupees to start your investment in systematic transfer plans; however, SEBI has not set any minimum to begin investment in STP.
A minimum of six transfers of funds is required to apply for investment in systematic transfer plans.
There is no entry load charged on these plans however there is an exit load charged on every fund’s transfer made, minimum of 2% can be charged as an exit load. Assets transfer from liquid funds to an equity fund is charged with exit load.
Benefits of systematic transfer plans
Higher profits – Transferring funds from one investment plan to another can be very beneficial in market swings. It allows investors to get profits when the market is volatile. Quick transfer of funds allows investors to enter another investment plan which has higher chances to generate profits.
Reduce risk – The equity market is always dynamic and very volatile sometimes which can be good to earn profits in a short period of time but the equity market does not always move in predicted trend, in that scenario systematic transfer plans allows investors to move or transfer his/her funds to safe and stable options such as debt instruments or any other stable options.
Diversification – One of the best features of systematic transfer plans. STP allows investors to diversify their investment portfolios. The investor can invest assets in both equity as well as in debt instrument under the same plan, it allows the investor to earn maximum returns and the investor can maintain the best risk to reward ratio after investing in both markets. Just in case equity moves in an unpredicted trend then an investor has the option to transfer the majority of funds to debt instruments to avoid any major loss.
Taxability – Every financial transaction made under a systematic transfer plan is subjected to a tax deduction, long-term capital gains are also subjected to a tax deduction but the percentage of tax depends on various factors such as the annual income of the investor. While redemption of investment from a systematic transfer plan can be subjected to approx 15% tax deduction under short-term gains.
Rupee cost averaging – Rupee cost averaging is considered to be one of the best features of systematic transfer plans, this feature allows investors to lower the cost of which is spend on STP.
This technique under systematic transfer plans enable investors to invest in funds when their price is low and investors can sell those assets when their market value increase, this process allow investors earn more returns on their investments.
Who should invest in STP?
Systematic transfer plans are ideal for those investors who want to earn maximum returns on their investments, even inventors who have a limited amount of money can earn maximum profits under STP.
Under STP investors can invest funds in both debt and equity markets to earn maximum returns but if the equity market is volatile or unpredicted then investors can transfer funds to a safe and stable option such as debt instruments.
STP is also an ideal option for those investors who want dynamic investment, investors who can track market movements, and change their investment strategy as per market conditions to earn maximum returns.
Points to consider before investing in STP
Systematic transfer plans can provide a large number of returns on your investments in the long-term time frame, although it can offer good returns in short term but can be more beneficial in the long term if taxation is taken into count. Before starting investment in STP, investors should have basic knowledge about the market and financial terms.
Investors must study market fluctuation and volatility before investing any major amount, it is always recommended to begin your investments with small amounts once you gain experience than you can invest a larger amount.
The investor must learn about tax deduction and exit load before starting an investment in STP. How much an investor can earn from a particular systematic transfer plan that depends on the performance of that mutual funds.
STP investments are pretty much risk-free but the investor also keeps in mind every mutual fund under STP is subjected to some amount of risks so an investor should have to be mentally prepared for that.
