Mutual funds: What is Systematic Transfer Plan?

Hi, please clarify what’s the idea of STP? What are its advantages? When ought to I exploit it?

-Gopi

The full type of STP is Systematic Transfer Plan. This is a really helpful idea began by the mutual fund trade to assist buyers keep away from the volatility of fairness markets.

If you must make investments a small quantity each month within the fairness market by way of mutual fund schemes, it’s possible you’ll go for SIP which could be very widespread amongst retail buyers. SIP stands for Systematic Investment Plan. However, when you have a lumpsum quantity to spend money on the fairness market, say ₹5 lakh, ₹10 lakh, and even larger, it’s suggested that as a substitute of immediately investing in fairness mutual fund schemes, it’s best to stagger your funding in debt/liquid funds and switch from there sure quantities to fairness mutual fund schemes of your selection through the use of the instrument of STP.

For instance, when you have obtained a bonus of Rs. 10 lakhs out of your firm and you’re planning to take a position it in fairness mutual funds for long-term targets like your youngsters’s marriage, youngsters’s training or self-retirement and so forth., as a substitute of investing your entire quantity of 10 lakhs into fairness mutual fund schemes immediately, it’s possible you’ll make investments the identical in some debt fund or liquid fund and provides directions to switch Rs. 1 lakh each month to 4 totally different fairness mutual fund schemes of your selection dividing Rs. 25,000 in every of the schemes.

In different phrases, you’ve got began 4 mutual fund SIPs of Rs. 25,000 every for the subsequent 10 months. This means, it is possible for you to to override the volatility within the fairness markets and you’ll not be impacted by the ups and downs of the inventory market.

However, please word that in STP you need to be ready to pay a small quantity as earnings tax in your short-term capital positive aspects which is able to accrue each time the quantity is transferred from debt fund to fairness fund.

The question is answered by Rajiv Bajaj, Chairman & MD, Bajaj Capital Ltd.

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