Systematic Transfer Plan (STP) - Mutual Fund Advisor in Mumbai, India.
Systematic Transfer Plan (STP)
An STP is a plan that allows investors to give consent to a mutual fund to periodically transfer a certain amount or units from one scheme and invest in another scheme of the same mutual fund house.
We recommend our investors to use the Systematic Transfer Plan (STP) as a defense mechanism in the volatile market. It can be used to transfer investment from one asset to another asset. For example, if you start investing Rs 5,000 every month in a mutual fund. If one does by SIP, this money will be taken from your account every month and invested in the mutual fund that you have selected for SIP.
STP is a similar variant of SIP. STP is basically transferring investment from one asset or asset type into another asset or asset type. The transfer happens over a period.
Systematic Transfer Plan is of mainly of two types;
1. Fixed STP-
It is an STP where investors take out a fixed sum from one investment to another.
2. Capital appreciation STP-
It is an STP where investors take the profit part out of one investment and invest in the other.
General Example of STP
Suppose you invested 5 lakhs in debt funds because you thought the market is trading to peak. The PE ratio of the market is 25 and you think that fall is imminent. So you invest your money in debt fund. Now assuming your prophecy was right and the market fell to a level where you can make entry to equities. However, there are overall weak sentiments which may push the market further down. The best strategy in this case made by most of the people is-
They take out 5 lakhs out of debt fund and invest in the equity oriented mutual fund. The risk, if the market goes further down, their fund value also falls. This is a very risky strategy.
There is another way which can really minimize the risk suggested by our experts on https://infinitumwealth.in. The way is called STP. In this case, one can withdraw a fixed amount from their debt fund investment and invest in the equity oriented fund. This can go on for several months depending upon your choice and preference. To exemplify, if you want to continue STP for 3 years, you can direct your fund to do this and the fund withdraws money automatically from your debt fund and put into equity fund every month. This strategy when applied by professional help, acts as a defense against any unfavorable movement of the market.
Points to be kept in mind
STP is one of the best investment strategies. It is one of the best risk lessening strategies of the market. Investors should keep the following points in mind.
As STP is a risk mitigation/lessening strategy, it protects from any adverse loss to a large extent.
A breaking STP because of short-term market movement or interest rate movement will only harm your investment in long-term.
One needs to understand the assets and the stages they are in and our representatives are always there for you to provide the best advice according to market trends. For example, it is unwise to transfer money from debt to equity when the market is close to peak value. Similarly, it is counter-productive to transfer money from equity to debt when the market is close to the bottom.