We have all heard about SIP (Systematic Investment Plan) and this plan is also popular among the investors. But there is another alternative to SIP that allows an investor to invest systematically in a disciplined manner. The difference between both the approach is of the original idea of the periodic instalment.
In a Systematic Transfer Plan STP, an investor transfers a fixed amount from one mutual fund i.e source scheme to another mutual fund i.e. target scheme periodically within the same mutual fund company. Usually, investors invest a lump sum amount in a liquid fund providing a standing instruction to transfer a fixed amount in an equity-oriented mutual fund.
This way an investor invests systematically in an equity-oriented mutual fund, benefits from the higher returns from liquid funds, averages out the rupee cost and balances the investment among liquid and equity portfolios.
An investor can invest a lump sum amount say Rs 1 lakh in Axis Liquid Fund (G), and opt for a monthly STP of Rs 10,000 per month to invest in Axis Bluechip Fund (G)
Here, Axis Liquid Fund (G) is the source mutual fund and Axis Bluechip Fund (G) is the target or destination mutual fund.
An STP transfers automatically a fixed amount from one fund to another. An investor needs to choose the fund from which the investment must be transferred and the fund in which the transferred fund must be parked.
Mr. Arun invests a lump sum amount of Rs 12 lakhs in a liquid fund opting for STP in a equity mutual fund.
|Total amount invested||Source Fund||Target Fund||Frequency||Fixed amount||Balance|
|Rs 12 lakhs||Liquid Fund||Equity Fund||Monthly for 2 years i.e. 24 transfers||Rs 50,000 per transfer||Day1|
In year1, Rs 6 lakhs will be invested in the equity fund and Rs 6 lakhs will stay invested in the liquid fund.
In year2, another Rs 6 lakhs will be invested in the equity and no amount in the liquid fund. The entire Rs 12 lakhs will stay invested in the equity fund.
With Scripbox Smart Transfer Plan, you can park your lumpsum investment in liquid funds and gradually move towards equity funds to beat the volatile market, aim for higher returns and opt for algorithmically-selected best funds for best performance.
Just follow the below simple 3 steps and stay invested
You can easily change the recommended mutual funds and the monthly amount.
There is no restriction on the minimum amount of investment in an STP, however many AMCs recommend an investment of Rs 12,000 in the source mutual fund for a systematic transfer plan.
The minimum capital transfer from the source fund to the target fund of 6 transfers is mandatory.
The entry load is not applicable on a systematic transfer plan, but SEBI allows AMCs to charge an exit load not exceeding 2%.
A systematic transfer plan enables an investor to invest in a disciplined manner and develop a planning attribute among the investors.
Every transfer from one fund to another will be treated as a redemption of the source fund and a new investment. Hence, every redemption will have a tax implication. Due to a minimum of 6 transfers, at least 6 redemptions followed by 6 tax implications.
The capital transfer within the first 3 years from a liquid or debt fund to an equity fund will be taxed as a short term capital gain/ loss (STCG).
Even with the tax implications, the returns on the liquid funds will be higher than the returns on fixed deposits and savings bank account interest keeping historical returns in mind.
Just like SIP, in STP also a fixed amount is invested at regular intervals in the destination fund or target fund. STP plan ensures averaging out the cost of investors by purchasing more units at a lower NAV and lesser units at a higher NAV.
The fund manager will additionally purchase units of the mutual fund scheme systematically over a period of time, hence the investor will get the benefit of rupee cost averaging reducing the per-unit cost of investment.
In an STP, the mutual fund investment portfolio aims for a balance between equity and debt. An STP plan rebalances the portfolio by moving the funds from debt mutual fund to equity mutual fund and vice-versa.
If the investment in debt increases, money can be allocated to equity funds by opting for an STP. If the investment in equities increases, the money can be switched from an equity mutual fund to a debt mutual fund.
By opting for an STP plan, an investor stays invested in the source mutual fund i.e. liquid fund while investing regularly in the target mutual fund i.e. equity mutual fund. An investor will enjoy the returns earned from equity mutual funds while earning returns from liquid mutual funds and staying protected as part of the investment is still invested in a liquid fund.
A systematic transfer plan STP is suitable for investors who have a lump sum amount to invest and wish to invest in equity mutual funds to earn high returns but worry about investing a lump sum amount in an equity fund and the market timing risk.
The investors can choose to park the lumpsum amount in a liquid fund earning returns and
opt for STP and systematically transfer a fixed amount at regular time intervals in an equity mutual fund.
Out of the lumpsum amount, a fixed amount is transferred to equity mutual funds. Here an investor earns returns on the remaining amount invested in a liquid fund and enjoys the returns on the equity invested investment as well.
A Systematic Transfer Plan in Mutual Fund are of 3 types, listed below:
In a fixed STP, an investor can transfer a fixed amount at a fixed period from one mutual fund to another i.e the amount and the frequency are fixed. An investor must be careful while making this decision and opt for the approach best suited for his/ her investment goals.
In a capital appreciation option, an investor transfers the returns earned or the profit made from the source mutual fund to the destination mutual fund. This way he/ she ensures the capital amount invested in the source mutual fund is secure and only the profit earned is invested in the destination fund.
In a Flexi-STP, an investor has a choice to transfer a variable amount to the destination mutual fund. This way he/she ensures the transfer is as per the market volatility and fluctuations. Example- An investor can choose to transfer a higher amount in a source mutual fund if the NAV is dipping and vice-versa.
The systematic transfer plan STP does not have a restriction on the minimum and maximum amount of investment. However, it is recommended to invest a lump sum amount to benefit from the plan.
No, STP is allowed only within the same fund house. An investor cannot invest in the source fund with one fund house and transfer in a target fund to another fund house.
The investment mechanism under STP and SIP is similar, a fixed amount is invested at a fixed time interval. The difference between STP and SIP is the lump sum amount available with an investor.
If an investor has a lump sum amount parked in a savings bank account it is better to invest through STP, This way the investor will earn returns on the lumpsum amount invested in a liquid fund and systematically invest in an equity fund.
The additional return earned will be a bonus return earned.
Taxation on mutual funds is a complex topic. Taxes paid on your mutual fund investments vastly depend on factors such as what kind of funds you have invested in, the duration of your investment, which income tax slab you belong to and so on.