A Systematic Transfer Plan (STP) is a mutual fund feature that allows you to transfer a fixed amount from one scheme to another on a regular basis. It's commonly used to move money from a debt fund to an equity fund gradually.

How STP Works

Say you have ₹5 lakh to invest in equity, but you're worried about market timing. Instead of investing all at once, you put the ₹5 lakh in a liquid/debt fund and set up an STP to transfer ₹50,000 per month to an equity fund over 10 months.

Why Use STP?

  • Reduces timing risk — you don't invest everything at market peaks
  • Money in the debt fund earns some return while waiting
  • Provides the benefits of rupee cost averaging
  • More disciplined than trying to time the market manually

Types of STP

Fixed STP

You transfer a fixed amount at regular intervals.

Capital Appreciation STP

Only the profit from the source fund is transferred.

Things to Consider

  • STP works between schemes of the same fund house
  • Exit loads may apply on the source scheme
  • Transfers are treated as redemption and new purchase for tax purposes

Disclaimer: This article is for educational purposes only.