Systematic Transfer Plans: A Lesser-Known Way Of Investing In Mutual Funds!

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Imagine you have ₹10 lakh and you are looking for an investment option, you think about equity but you are afraid of the risk, then you decide to invest your money in a mutual fund. But you don’t want to invest in lumpsum, and you think of doing a SIP. If you invest ₹20,000 per month, It would take you almost 4 years to invest it all. So where do you plan to park that money till your SIP is finished? Most probably your answer was in a savings account that would give you a 3-4% return. But what if I say to you that you have a better option to park your money, an option that would provide you approximately 6-7% returns, great- isn’t it.

Here comes an STP or Systematic Transfer Plan. STP is a lesser-known option for investing in a mutual fund, under this, your money is automatically transferred from one mutual fund scheme to another, under the same asset management company. One may be a debt mutual fund, and the other one may be an equity fund. You would first need to park your money in a debt fund which would then be transferred to an equity fund through SIP. Under this, the debt fund would be called the source scheme, and the equity fund is known as the target scheme’.

Who all can use STP?
There are no criteria for this, but a person who doesn’t want to invest the lump sum amount in a mutual fund directly due to any reason such as the market is overvalued, the fund Is overvalued, or any other reason, then you can start a SIP with help of STP. Also, this is a good option for those who want to earn some extra interest while their money is parked.

Types of Systematic Transfer Plan –
1. Fixed Systematic Transfer Plans: Under this money is invested in fixed intervals, this interval may be fixed by you, it can be monthly, weekly or yearly.

2. Flexible Systematic Transfer Plans: The choice of transfer depends on the investor and it’s upon them when to transfer it. An investor may consider market volatility and fund performance.

3. Capital Systematic Transfer Plans: This plan Is quite different from the 2 above, under this the gains earned from one fund are then transferred to another.

Advantages of Systematic Transfer Plan –
1. Option to invest in more than one kind of mutual fund at the same time, with the same capital.

2. Earn better interest as compared to money sitting in a bank account. You get 3-4% on a savings account, while in a debt fund you can get 6-7%.

3. Transfer funds from debt to equity as you please as you wish, this would help you tackle market volatility.

4. You can also transfer funds from equity to debt funds, this would help you earn high returns and then transfer your money to safer options such as debt.

Things to remember while investing in a Systematic Transfer Plan-
1. The risks associated with investments, still are applicable to the Systematic Transfer Plan. So make sure you take a look at all the risks for both the Source scheme as well as the Target scheme.

2. The minimum investment amount that makes you eligible for STP is 12,000.

3. You would at least need to make 6 transfers under STP, to be eligible for this scheme.

4. Under any mutual fund company there are many different funds, but not all of them are eligible for STP.

5. STP is a good investment scheme for the long term, in the short term you won’t earn much on the capital.

Conclusion – STP is a great investment option, one can’t deny that. It has its own advantage, you can invest in it, as it provides dual benefits both of debt as well as an equity fund. And it’s better to invest your money in a debt fund and earn a higher return, than to keep it in a bank account.

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