Feature, Advantage & Benefit of STP

An investor can invest in a mutual fund by any of the following three options:

• Lumpsum
• SIP (Systematic Investment Plan)
• STP  (Systematic Transfer Plan)

STP is basically an arrangement of Lumpsum, SWP & SIP. If you have a lumpsum amount available and do not want to invest entirely your stake at one go in the equity market, then an alternate option is to start STP in which you park your entire investment amount in a conservative scheme (Liquid fund) and systematically transfer it to an aggressive scheme (Equity / hybrid fund). One can also do vice versa i.e. from aggressive fund to conservative und to mitigate the risk & volatility. 

The difference between SIP & STP is that in SIP the arrangement is made from auto-debiting your bank account and invest in your selected MF scheme. In STP, it is a transfer of an amount from the source fund to the destination fund. 

More or less, you get all benefits in STP just like in the case of SIP. There are several Features, Advantages & Benefits (FAB) of STP which most investors are not aware of:

Feature:

• Minimum investment amount (source fund) - Rs. 5000
• Date - any date between 1 to 28
• Frequency - daily, weekly, fortnightly, monthly, quarterly
• Flexibility - anytime pause, stop, restart, redeem - full or partial, increase or decrease STP amount
• Convenient - with or without Demat, online or offline
• Asset categories - Equity, Deby, Hybrid, Liquid, Gold, Real Estate, Int. Equity
• Automated process - transfer from one scheme (source) to another scheme (destination) at a fixed frequency
• STP Types
• Fixed STP / Constant STP
• Variable STP/ Flex STP
• Value STP
• STP with Insurance

Advantage:

• Rupee cost averaging
• Power of compounding
• Risk management - manage the volatility of the market
• No need to time the market
• Keep your emotions of fear & greed in control
• Give the opportunity to participate in equity for small & retail investors

Benefit:

• Create wealth for an investor in the loner run
• Annuity for life
• Create a legacy for the generations
• Help to achieve all kinds of financial goals
• Give the flexibility to rebalance the portfolio
• Auto transfer process reduces human biases & emotions 

Mandatory requisite from an investor:

• Consistency
• Discipline
• Patience
• Behavior Finance - mindset & attitude

STP is a time test formula for wealth creation for retail investors. However, many still deprived of this scientific approach just because of their own behavior.

Disclaimer: Investment in securities & mutual funds are subject to Market Risk