How To Guide

Systematic Transfer Plan - Meaning, Process and Types

What are Systematic Transfer Plans? How does a Systematic Transfer Plan work? This blog answers these questions and tells you how to invest in mutual fund STPs using Cube.
October 9, 2020

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Systematic Transfer Plans are a unique method of investing in mutual funds that offer several benefits. But little is being said about STPs and how it can be a suitable method for investors.


We’d like to ensure that you have all the information you need to make your investments work for you. So we’ve compiled all the facts you possibly need to understand if investing in STPs could be right for you.


What Is A Systematic Transfer Plan (STP)?


A Systematic Transfer Plan (STP) allows you to transfer money from one mutual fund scheme to another. A lump sum is initially invested in a liquid fund. A portion of the initial investment is then periodically transferred from the first fund to other mutual funds (similar to a SIP). 


Investors can choose to transfer the money to other funds either on a weekly, monthly or quarterly basis. Since moving money from one fund to another implies selling units of the initial fund, usual tax rules apply.


According to SEBI guidelines, a minimum of 6 transfers is necessary for an investment to count as an STP. The guidelines also state that there is no minimum investment amount for STPs. If you would like to know more about the minimum investment amount for STPs on Cube, get a free consultation call today.


What Are The Types Of Systematic Transfer Plans?


There are three different types of Systematic Transfer Plans that enable you to gain market-related advantages:


  • Fixed STP: A fixed amount of money is transferred from one fund to another as decided by the investor. Speak To A Wealth Coach to get started with this option on Cube.

  • Capital appreciation STP: The investor can choose to transfer the profits earned from one fund to another fund.

  • Flexible STP: Depending on the market cycle, the investor can choose to transfer money from one fund to another. Example: Positive market trend: Debt to Equity; Negative market trend: Equity to Debt.


What Do You Need To Know Before Investing Through Systematic Transfer Plans?


The most important thing to an investor is the knowledge surrounding the investment. Otherwise, we’re just shooting hoops in the dark and hoping to score a 3-pointer. So here are a few things that you need to know before you invest through Systematic Transfer Plans: 


  • Initial lump sum amount is necessary 
  • STPs are suitable for the long term
  • Entry load is not applicable for Systematic Transfer Plans
  • Exit load charged on each transfer (exception: liquid fund to an equity fund)
  • Fund to fund transfer only occurs between schemes owned by the same AMC
  • Every transfer incurs a tax deduction
  • STCG applicable if the investment is redeemed before 3 years
  • LTCG based on investor’s tax slab


How Can You Start A Systematic Transfer Plan With Cube?


An STP opens the door to strategies that can help you get the best out of market trends. But if you are a busy professional, keeping up with market trends can be very tedious and time-consuming. On top of that, it’s difficult to identify which fund works for you according to your investment goals. After all, there are over 17,000 mutual fund schemes to pick from. 


So it’s always advisable to consult a Cube wealth coach to understand if STPs are a suitable option for you. Our wealth coaches can also help you navigate the scheme options and determine a suitable risk profile. 


Summary


Simply put, an STP becomes a SIP over the course of time while offering additional benefits such as higher returns, portfolio balance, rupee cost averaging,  etc. Another benefit of STPs is that you can invest across market cycles by switching between funds according to market conditions. This is a potentially wise method of minimizing risk and maximizing returns.


Existing Cube users have access to STPs and if you want to add a mutual fund investment based on an STP to your portfolio, download the Cube Wealth app or consult a wealth coach today.


Systematic Transfer Plan Jargon At A Glance


  1. Source scheme/Transferor scheme: The initial or preceding mutual fund from which money is transferred to another scheme 
  2. Target scheme/destination scheme: The other scheme to which money is transferred
  3. Capital Appreciation: The growth in the value of capital/assets
  4. Bear Market: Period of decline in the value of stocks
  5. Bull Market: Period of surging rise in the value of stocks
Shriram Shekhar
Shriram is a Consultant at CubeWealth. He has developed cutting edge IT products for over 2 years before turning to his passion for the written word. His love for philosophy, developing products, and empowering people through quality content is what got him to CubeWealth.

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