STP is an easier way to reap the benefits of Rupee cost averaging. It enables you to transfer a fixed amount of money at regular intervals from designated debt schemes to designated equity and balanced schemes.
08-Apr-2004 •Research Desk
One of the highlights of mutual funds is the convenience they offer. This is however, often overlooked in the race for returns. Still, this has not stopped funds from trying to make your life easier. One innovation that is catching on is the Systematic Transfer Plan (STP).
A STP enables you to switch or transfer a fixed amount of money at regular intervals from designated debt schemes to designated equity and balanced schemes. In effect this is similar to a systematic investment plan, except that in a SIP the investment flows from a bank account into the fund and here it flows from one scheme to another. The plus point in this scheme is that it no entry loads will be levied for on the equity and balanced schemes being entered into. However a CDSE equivalent to the entry load is levied for redemptions made within a year of investing. Also unlike a SIP where you have to cut a number of cheques depending on your investment duration, here only one form has to be filled.
Suppose, you have lump sum money, say Rs 50,000, and want to investment in mutual funds. First, put all this money into the growth plan of any short-term debt funds or cash funds. Then, create a STP schedule or give a standing instruction to transfer say Rs 1,000 every month or quarter from your debt scheme into different equity schemes (including balanced funds) for the next ten-to-twelve months. Generally, STP facility is subject to 7 days advance notice for commencement or discontinuance.
Effectively this process gives you the benefits of Rupee cost averaging where your investments are not tied to any particular level of the market. Currently Kotak, Principal, Tata, Templeton, Birla and Prudential ICICI are some of the AMCs, which offer this facility.