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What is STP in Mutual Funds?

What is STP in Mutual Funds

Mutual funds investment has always attracted investors to gain higher returns on their investments. However, the same carries some risk because of the influence of the market situation on the expected returns. In recent times, mutual fund returns have been very volatile, creating insecurity in the investors, but certainly, it can be fixed by opting for STP; a systematic transfer plan, which will help to lower such risks involved. This blog is a walkthrough to learn more about STP in mutual funds. What is STP in mutual funds?

What is Systemtic Transfer Plan (STP)?

Imagine STP as a smart way to invest your money in mutual funds. It's like having a plan that helps you move your money from one place to another, kind of like shifting gears in a car. This way, you can keep your investments safe, protecting them from ups and downs in the market. Although it does not remove the risk completely, it surely reduces the risk involved. The investor can shift his investment from one mutual fund to another one. Internally, this transfer takes place in the multiple schemes offered by the same companies. Nearly all asset management companies offer this plan to their valued and esteemed customers.

Here's a simple explanation of Systematic Transfer Plans (STPs)

Imagine STPs as a smart money manager who helps you move your funds strategically between different investment options. It's like having an autopilot for your investments, making sure they're working hard for you even when you're busy with life.

Here's how STP works:

  • You start with a certain amount of money in a debt fund. Think of this as your stable foundation, like a savings account that earns a decent interest but doesn't take too many risks.
  • You set up an STP to shift a fixed amount of money from this debt fund to an equity fund at regular intervals. Equity funds invest in stocks, which have the potential for higher returns but also carry risk. STPs help you gradually move towards these higher-growth options without diving in all at once.
  • This transfer happens automatically, on a schedule you choose, like monthly or quarterly. It's like setting up a recurring transfer from your savings account to your investment account but within the mutual fund world.

Why use STPs?

  • Rupee-Cost Averaging: By investing smaller amounts regularly, you avoid the risk of buying all your stocks at a high price. STPs help you buy more when the market is down and less when it's up, averaging out your cost over time.
  • Disciplined Investing: They make it easy to stick to your investment plan, even when emotions or market fluctuations try to tempt you away.
  • Risk Management: They help you transition to potentially higher-growth equity funds without putting all your eggs in one basket at once.
  • Compounding Benefits: By regularly adding to your equity fund, you give your investments more time to grow and benefit from the power of compounding interest.

Types of STP

Explore the diverse types of STP, each catering to different investment preferences and risk appetites:

Capital-Based STP:

Strategic transfer of capital gains between mutual funds for optimal growth.
This is the capital gain made out of investment that can be applied with STP. This transfer can be made by transferring the capital funds from one mutual fund to another to gain more returns on capital by investing in the mutual funds that are fast growing.

Fixed STP:

A structured approach involving fixed sums transferred for a predetermined period. This module works differently. It involves a decision-making process to transfer a fixed sum of money from one mutual fund to the other where the investor cannot change it later for a certain period as per the module specifications, rules, and regulations.

Flexible STP:

Provides investors the freedom to choose the amount they wish to shift, offering adaptability. This plan provides freedom to the investor to choose any amount of investment he is willing to shift from one resource to the other.

The structure of the STP plan consists of three steps, selection of the plan followed by execution of the process end stage by getting the desired returns and assured safety fee involved. When an investor chooses one plan out of the above-mentioned three plans, his STP process starts after choosing to make a transfer of mutual funds. Investors don't have to pay any entry fee charges to the companies. However, some companies may impose an exit load if the investor exits the fund before a certain period.

Applicable taxations:

The investor is also liable to taxations on the returns gained on STP since it is nothing but mutual fund gains, only the short-term capital gains or STCG are taxed at 15%, whereas the long-term capital gains or LTCG are tax-free up to one lakh rupees above which a 10% tax is levied.

Benefits of STP Investments:

No Minimum Investment Requirement:

Freedom to invest any amount, making it accessible to investors of varying financial capacities.

Increased Gains:

Optimize gain ratios by strategically transferring funds during major market shifts, directing investments toward high-performing assets.

Stability in Investments:

Balances between debt and equity funds, minimizing the impact of market volatility.

Rupee Cost Averaging Module:

Averages the cost through strategic buying and selling, maximizing returns.

Key factors to consider before investing in STP

Investment Horizon: STPs are best suited for long-term goals, ideally 5 years or more. The market has its ups and downs, and you need time for compounding to work its magic.

Risk Tolerance: While STPs manage risk by diversifying their portfolio, equity markets can be volatile. Ensure your risk appetite aligns with the chosen equity fund.

Financial Goals: Align your STP plan with your specific goals. A higher equity allocation might suit an aggressive retirement plan, while a cautious investor might prefer a conservative balance.

Calculating STP Example:

Let's see how an STP works in practice. Say you invest Rs. 5,000 in a debt fund and set up a monthly STP of Rs. 1,000 to an equity fund. This means Rs. 1,000 will be automatically transferred from your debt fund to your equity fund every month. Over time, your equity fund grows with these regular investments, while your debt fund continues to provide stability.


As we conclude our exploration of Systematic Transfer Plans, it becomes evident that STP is not just an investment strategy; it's a comprehensive approach to securing stability and optimizing returns. By grasping the distinctions of STP and carefully considering key factors before investing, you can empower yourself to navigate the dynamic market with confidence and make a good investment. Ready to take control of your investments? Reach out to TradingBells today and unlock the power of STP.

Frequently Asked Questions:

1. How much can I invest with STP?
Ans. There's no minimum investment requirement with STP! Whether you're a seasoned investor or just starting out, STP allows you to participate in the market with any amount you feel comfortable with.

2. Can I change my STP plan later?
Ans. Absolutely! While some fixed STPs may have lock-in periods, most plans offer flexibility to modify your investment amount or switch between funds as your needs and market conditions evolve.

3. Are there any taxes involved with STP?
Ans. STP investments follow the normal taxation rules for mutual funds. Short-term capital gains (less than 1 year) are taxed at 15%, while long-term capital gains (over 1 year) are tax-free up to Rs. 1 lakh and taxed at 10% thereafter.

4. Where can I get help managing my STP plan?
Ans. TradingBells is your one-stop shop for all your STP needs! Our experts offer personalized guidance, help you choose the right STP plan for your goals, and monitor your investments to ensure optimal performance.


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