Types of STP (Systematic Transfer Plan)
What Are the Types of STP?
In our earlier article- Systematic Transfer Plan (STP), we have seen what is STP? How does it work? Also, How does STP help in mitigating the market risk while making the lump sum investment in the equity mutual funds. Now, Let us see the types of STP in this article.
What is STP?
- STP stands for Systematic Transfer Plan. STP gives a facility to investor by which the investor can transfer a fixed or variable amount or units of funds from one scheme to other at regular intervals (weekly, monthly or quarterly).
- In STP you have a lumpsum, you invest this lump sum into one fund type and then transfer a fixed or a variable amount into another type of fund. It is a systematic transfer of funds from one asset class to another, usually debt to equity, with your desired amount and frequency.
- STP just like SIP is an investment strategy. It is a risk mitigation strategy.
- STP is majorly used to transfer money from debt funds scheme to Equity schemes. As during volatile markets, you may not feel confident to invest a lumpsum amount in Equities. So, in that case good strategy is to invest the lumpsum in Debt and start an STP to Equity, which spreads your investment in selected time frame. This is a good risk mitigation strategy.
1. fixed STP
- In this only a fixed amount is transferred from one scheme to another.
- The investor can decide on this amount as per his financial goal and apply for the same.
- For Example, I want to transfer Rs. 6,00,000/- from HDFC Liquid Fund to HDFC Equity Fund on monthly basis than, I have to transfer Rs. 20,000/- per month from HDFC Liquid Fund to HDFC Equity Fund.
2. CAPITAL APPRECIATION STP
- In Capital Appreciation STP, the investor takes only the profit part out of one fund and invests it in another. So, the amount is not fixed and depends on periodic profits. . So, the amount is not fixed and depends on periodic profits.
- For example, I want invest Rs. 6,00,000 for long term(10+years). The PE ratio of the market is 25 and hence i think that fall is impending. Hence i invested my money in debt fund.
- Now assume that i was right and the market certainly fell to a close where i can make entry to equities. I can take out 6 lakhs out of HDFC Liquid Fund and invest in HDFC Equity Fund. The risk is that if the market goes further down, my fund value will also fall.
3. FLEXI STP
- In Flexi STP unit investor have a option to transfer variable amount. The fixed amount will be the minimum amount and the variable amount be subject to the volatility in the market.
- If the NAV of the fund falls investment can be increased to take advantage of falling prices and if the market moves up the the minimum amount of transfer is invested to take advantage of increasing prices.
- Transfer facility is available on a daily, weekly monthly and quarterly interval. the minimum amount of transfer is invested to take advantage of increasing prices.
- Transfer facility is available on a daily, weekly monthly and quarterly interval. For example, I want to invest Rs. 6,00,000 for long term(10+years)