What Is A Systematic Transfer Plan - Meaning, Process and Types

Systematic Transfer Plans are a unique method of investing in mutual funds that offer several benefits. But little is being said about STPs and how it can be a suitable method for investors.

We’d like to ensure that you have all the information you need to make your investments work for you. So we’ve compiled all the facts you possibly need to understand if investing in STPs could be right for you.

What Is A Systematic Transfer Plan (STP)?

A Systematic Transfer Plan (STP) allows you to transfer money from one mutual fund scheme to another. A lump sum is initially invested in a liquid fund. A portion of the initial investment is then periodically transferred from the first fund to other mutual funds (similar to a SIP). 

Investors can choose to transfer the money to other funds either on a weekly, monthly or quarterly basis. Since moving money from one fund to another implies selling units of the initial fund, usual tax rules apply.

According to SEBI guidelines, a minimum of 6 transfers is necessary for an investment to count as an STP. The guidelines also state that there is no minimum investment amount for STPs.

If you would like to know more about the minimum investment amount for STPs on Cube, get a free consultation call today.

What Are The Types Of Systematic Transfer Plans?

There are three different types of Systematic Transfer Plans that enable you to gain market-related advantages:

• Fixed STP: A fixed amount of money is transferred from one fund to another as decided by the investor. Speak To A Wealth Coach to get started with this option on Cube.
  
• Capital appreciation STP: The investor can choose to transfer the profits earned from one fund to another fund.
  
• Flexible STP: Depending on the market cycle, the investor can choose to transfer money from one fund to another. Example: Positive market trend: Debt to Equity; Negative market trend: Equity to Debt.
  

Factors To Consider Before Investing Through Systematic Transfer Plans

The most important thing to an investor is the knowledge surrounding the investment. Otherwise, we’re just shooting hoops in the dark and hoping to score a 3-pointer. So here are a few things that you need to know before you invest through Systematic Transfer Plans: 

• Initial lump sum amount is necessary 
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• STPs are suitable for the long term
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• Entry load is not applicable on Systematic Transfer Plans
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• Exit load charged on each transfer (exception: liquid fund to an equity fund)
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• Fund to fund transfer only occurs between schemes owned by the same AMC
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• Every transfer incurs a tax deduction
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• STCG applicable if the investment is redeemed before 3 years
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• LTCG based on investor’s tax slab
  

How To Start A Systematic Transfer Plan With Cube?

An STP opens the door to strategies that can help you get the best out of market trends. But if you are a busy professional, keeping up with market trends can be very tedious and time-consuming.

On top of that, it’s difficult to identify which fund works for you according to your investment goals. After all, there are over 17,000 mutual fund schemes to pick from. So it’s always advisable to consult a Cube wealth coach to understand if STPs are a suitable option for you.

Our wealth coaches can also help you navigate the scheme options and determine a suitable risk profile. 

Summary

Simply put, an STP becomes a SIP over the course of time while offering additional benefits such as higher returns, portfolio balance, rupee cost averaging,  etc. Another benefit of STPs is that you can invest across market cycles by switching between funds according to market conditions.

This is a potentially wise method of minimizing risk and maximizing returns. Existing Cube users have access to STPs and if you want to add a mutual fund investment based on an STP to your portfolio, download the Cube Wealth app to know more.

Watch this video to know why you should invest using Cube Wealth

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Systematic Transfer Plan Jargon At A Glance

1. Source scheme/Transferor scheme: The initial or preceding mutual fund from which money is transferred to another scheme 
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2. Target scheme/destination scheme: The other scheme to which money is transferred
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3. Capital Appreciation: The growth in the value of capital/assets
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4. Bear Market: Period of decline in the value of stocks
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5. Bull Market: Period of surging rise in the value of stocks

FAQs

1. What is difference between STP and SWP?

Ans. A Systematic Transfer Plan (STP) is a method of investing in mutual funds. A Systematic Withdrawal Plan (SWP) is a method of withdrawing money from a mutual fund. STPs allow you to transfer money from one fund to another periodically whereas SWPs allow you to invest a fixed amount periodically.

2. What is a Systematic Transfer Plan and how does it work?

Ans. In a Systematic Transfer Plan (STP), money is periodically transferred from one fund to another. You can choose the frequency of the transfer. Generally, investors prefer to park cash in a liquid fund and transfer it to an equity fund in a STP.

4. What is the difference between an STP and a Systematic Investment Plan (SIP)?

Ans. While SIP involves regularly investing a fixed amount in a single fund, STP involves transferring funds from one scheme to another. SIP helps in accumulating investments, while STP helps manage and reallocate existing investments.

5. Is there a minimum investment required for an STP?

Ans. Yes, there is typically a minimum investment amount required for an STP, which may vary depending on the mutual fund company and the fund you're investing in.

Conclusion 

A Systematic Transfer Plan (STP) is a valuable investment strategy that allows you to manage risk and optimize returns by gradually reallocating funds from one mutual fund scheme to another. It's particularly useful for investors looking to transition from low-risk, stable investments to higher-return, higher-risk ones while maintaining a disciplined and automated approach to investing.

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