STP (Systematic Transfer Plan)
STP is a way through which one invests a lumpsum amount in one scheme & regularly transfers a predefined amount into another scheme of the same mutual fund house. In the long run, STP helps in cutting down risks to a considerable level & earning good returns. Basically, STP Means transferring an investment from one asset or asset type into another asset or asset type. This transfer process happens gradually over a period of time.
Further, STP can be classified in to three parts
Fixed STP-Here the investors take out a fixed sum from one investment to the another.
Capital Appreciation STP – Here the investors take out the profit part of the investment & i nvest it in another
Flexi STP – Here, the investor has a choice to transfer a variable amount towards the investment.
Benefit
Helps in Re-balancing Portfolio
Through STP, one can balance their portfolio effectively as this method allows the allocation of investments from equity to debt or vice versa. If your investment equity goes up then it can be switched from an equity to a debt fund.
Consistantent Returns
Through STP One can transfer the set amount to a target equity fund while still being invested in a debt or liquid find. So, an investor stand to gain benefit from the returns of the equity fund to which the funds re being transferred to & at the same time remain protected as a part of the investment remains in debt.
Averaging of Cost
STP helps in averaging out the cost as it assists in buying units when the rates are lower & vice versa.