Article

Systematic Transfer Plan (STP) in Mutual Funds
June 07 , 2012

The Systematic Transfer Plan (STP) is a facility provided in most mutual fund schemes. This allows you to move fixed amount of money every month or every quarter from one scheme to another scheme managed by the same mutual fund house.

Here's a practical use for this: say you get a bonus but don't want to take the risk of putting all this money into equity at once. You can put this money into a debt fund initially, and sign up for an STP to transfer a bit of it every month into an equity fund. Thus, an STP doesn't affect your bank account at all, and offers you the convenience of having these switches done automatically. Some more details you need to know about STP:

Differing features of STP

You can do an STP only between funds belonging to the same fund house. Different fund houses have different options for their STP.

Frequency

Most of them have weekly, monthly and quarterly option of transfer, just like in SIP.

Amount of transfer

Fund houses that offer STP feature also stipulate a minimum amount that has to be transferred in each installment.

Others like Kotak Mutual Fund in addition have the option to transfer just profits from a fund to another fund. As and when a fund makes profit it can be transferred to a less risky fund, say a debt fund. Some of them are called as Capital Appreciation STPs.

Choice of funds for transfer

STP might not be allowed for all funds. Fund houses may specify equity, debt and hybrid funds out of which and into which STP is allowed.

Tax and loads in STP

Since STP is essentially exiting a fund and entering another, capital gains taxes would apply.

Similarly exit load would apply on the funds from which you are switching out of.

How to do STP

You can fill up form for STP indicating choice of funds both for switching out of and switching in, frequency of transfer, date of transfer (you need to choose from dates fixed by the fund house) and amount of transfer. After submitting your application it would take effect within about 2 weeks' time.

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