Systematic Transfer Plans or STPs are used as a tool to transfer funds from one MF scheme to another in a number of instalments. The most frequently used mode is to transfer funds from a debt fund (say a liquid fund) to an equity fund in the same fund house. Usually, the entire funds are transferred with a minimum of 6 instalments.
The chief benefit in this arrangement is mitigation of risk. The amount to be transferred is predetermined and shifted in significant chunks from one to the other to extinguish the original corpus in a specific time.
Stagger investments
Nilanjan Dey, director, Wishlist Capital told News9live that those investors who have an investible pool of money can first invest it in a debt fund such as a liquid fund. Then the money can be moved over the next 6 months to 1 year in any equity find of the investor’s choice. The amount can be the same every month.
However, one needs to remember that it is not necessary that one has to move in monthly instalments. The amount can be transferred daily or weekly too but most investors are comfortable with monthly transfers as in the case of SIPs (Systematic Investment Plan).
Debt funds favourite as source funds
A debt fund is often chosen as the source fund since debt funds provide higher returns than savings banks. The difference can be of significant to the investor. According to market data ultra short term debt fund and liquid funds which often invest in those debt instruments which mature in 1 to 6 months, offer annualised yields between 7 and 7.5%.
Overstretched valuations
The need for STP is all the more pronounced since valuations have become overstretched in the past several months and the markets have become volatile. The market is in the grip of a liquidity-driven bull run and putting lump sums are increasingly becoming challenging.
However, it is not necessary that one has to move in monthly instalments. The amount can be transferred daily or weekly too but most investors are comfortable with monthly transfers as in the case of SIPs (Systematic Investment Plan).
Most people use Systematic Transfer Plans to channel money from one mutual fund scheme to another when they are not sure whether to commit a lump sum into one fund at one go. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
