Systematic transfer plan (STP)
We all know the benefits of a systematic investment plan (SIP). But that’s meant for someone who earns cash at regular intervals that can be channelized into investments, such as mutual funds (MF). But what happens if you have a lump sum to invest at one shot? Should you necessarily invest everything at one go?
Here’s where systematic transfer plan (STP) comes in.
What is STP?
It works just like an SIP but with a small twist. An STP entails that you invest your entire corpus in a liquid fund and then invest your money systematically in an equity fund every month, just like an SIP. The other option, if you aim to deploy a lump sum systematically, is to first put all your money in a bank account and then do an SIP. But your savings bank account will fetch you just 4% on the balance that remains in it. That’s pittance. Instead, a well-managed liquid fund can fetch you about 5-7% returns on your balances while the money transferred to equity funds, can enjoy equity returns.
What you should keep in mind
Both schemes must be within the same fund house: The source fund (liquid or any other debt fund where your initial investment goes into) and the target fund (the equity fund in which your money finally gets invested in) should belong to the same fund house. Most online transaction portals, such as Fundsindia.com and Fundsupermart.co.in, also offer STPs on their websites. Few other online brokerages such as ICICI Direct do not offer STPs. But since it has a tie-up with ICICI Bank, it allows you a combination of systematic withdrawal plan (SWP) and SIP and you can choose from a plethora of debt and equity funds to chart out the flow of your money. SWP takes care of regular withdrawals from the liquid fund and SIPs ensure that this money gets invested in equity funds. But STPs typically mandate that both the schemes are within the same fund house.
Fill out two forms: Since you will put all your money first in a liquid fund, you will need to fill out a form to that effect. For STP, fund houses have a separate form, where you specify the equity fund where you want your money to go to.
Ultra short-term funds and other debt funds are also available: It’s not just liquid funds that are available for your initial investment. Ultra short-term funds and short-term funds are also available as source funds. However since short-term funds are linked to market (underlying securities move up and down as per market movements), there is a chance that you may risk your capital during volatile markets.