Difference between revisions of "Systematic Transfer Plan"

Revision as of 20:00, 22 March 2018

Mutual Funds are investment tools that inculcate discipline in investing.

Like its friend SIP, STP is one such tool that allows investors to keep investing in a disciplined manner.

STP stands for Systematic Transfer Plan.

It works in a similar manner to Systematic Investment Plan and Systematic Withdrawal Plan (SWP) but with a slight difference.

In STP, investors having some corpus money with them will first invest in a scheme called the Source scheme.

The source scheme is usually a Liquid Mutual Fund Schemes so that capital is always preserved.

An STP instruction is then given so that a small fixed quantum of fund is transferred from the above source scheme to a Target scheme.

The target scheme is usually an Equity Mutual Scheme.

With the STP instruction, we tell how much money, and how frequently the funds need to be transferred from the source scheme to the target scheme.

Because STP transfers the money automatically on the said day, it is like we are investing in the target scheme as per the frequency.

Since equity markets will be volatile, we get more units when the STP happens on a day when the market falls (or vice-versa).

So, STP is helping us to keep investing irrespective of the market conditions and helps in accumulating units as per the market conditions.

This method can be used only when both the source and destination schemes are managed by the same Asset Management Company.

Avoiding Lumpsum in Equities

It is never a good idea to invest in lumpsum in Equities because Equities are a high volatile asset class.

So, using the STP method, an investor having lumpsum money can invest in a source scheme and then gradually channel the funds to the target scheme.

By doing this, one can avoid the difficulty of timing the market.

Frequency of STP

The frequency of transfer of money from one scheme to another vaies.

Most Mutual Funds allow selecting Weekly, Fortnightly, Monthly or Quarterly.

Few AMCs such as Reliance Mutual Fund allow a Daily STP.

Example 1

I can first invest in DSPBR Short Term Fund and then give a STP instruction to transfer funds to DSPBR Small and Midcap Fund. This is allowed and acceptable.

Example 2

I can first invest in DSPBR Short Term Fund and then try to give a STP instruction to transfer funds to Reliance Smallcap Fund. This is not allowed and not acceptable because DSPBR and Reliance are two different AMCs.

Example 3: Practical implementation

Allowed STP Dates are: 01,07,14,21,28

The dates differ from one AMC to another.

For instance assume i made Rs. 25000 investment in a debt fund

I want to switch Rs. 5000 to equity fund per month

So, i will give that switch instruction here

I will give an instruction that on 1st of every month, switch Rs. 1000

Then i will add another STP instruction

I will give an instruction that on 7th of every month, switch Rs. 1000

This way, i will give 5 instructions for 5 different dates

So every week, 1k will get transfered.

When there no funds in your debt fund. the stp automatically gets stopped.

So i just make sure that when ever i get some big amount, i put it into debt fund.

And switches will automatically take place.

Switch gets stopped when debt fund does not have minimum money.

Got it?

Daily STP Method

There are few AMCs who offer Daily STP option.

Amongst them are Reliance Mutual Fund and DHFL Pramerica Mutual Fund.

Allow me to explain how the Daily STP option can be used.

Assume that you have Rs. 2.5 Lakhs allocation to the Reliance Smallcap Fund - Direct Plan - Growth Option.

It is never a good idea to invest the whole amount in a single go in any Equity scheme.

So, we will first invest the funds in a [Liquid Mutual Fund Schemes|liquid mutual fund scheme] and then give a Daily STP instruction to transfer the funds at the rate of Rs. 1000 per day to the target scheme.

Because we will be investing in the target equity scheme every day, cost-averaging works better.

To stat the process, login to your Reliance MF Website at https://investeasy.reliancemutual.com/online

Invest your surplus funds first in Reliance Liquid Fund - Cash Plan - Direct Plan - Growth option.

The investments in the liquid scheme do not carry any entry or exit load which means it be moved out easily.

After the investment is made, on the next working day, give a Daily STP instruction, under Systematic Investments option.

Select the source as Reliance Liquid Fund - Cash Plan - Direct Plan - Growth option

Select the target scheme as Reliance Smallcap Fund - Direct Plan - Growth option

Enter the amount as Rs. 1000

Enter frequency as Daily.

The funds will move from your temporary scheme to the target ELSS scheme daily and automatically.

In the above example, Rs 2.5 Lakhs / Rs 1000 per day = 250 working days

The Reliance MF website will select the start and end dates automatically.

Usually, the start date will be 7 days from giving the STP instruction.

Related Topics

• Introduction to Mutual Funds
• Mutual Fund Units
• New Fund Offer (NFO)
• Net Asset Value or NAV
• Know Your Customer / KYC
• Expense Ratio
• SIP vs Lumpsum Investments
• DIRECT plan vs REGULAR plan
• GROWTH option vs DIVIDEND option