An instruction to move a fixed amount at regular intervals from one mutual fund scheme to another within the same fund house.
A Systematic Transfer Plan moves money in instalments from a source scheme to a target scheme of the same fund house. A typical use: place a lump sum in a liquid or short-term debt fund and transfer a fixed amount each week or month into an equity fund. Each transfer is a redemption from the first scheme and a purchase in the second.
Why it matters
An STP lets a lump sum enter a more volatile asset gradually, much like an SIP, while the money waiting its turn sits in a lower-volatility scheme rather than a savings account. It can also run the other way — moving money gradually from equity to debt as a goal approaches, which is one way to manage risk near a deadline.
How to read it
- Duration. A 6-month STP and a 24-month STP spread market entry very differently. Longer is not automatically better: money waiting in the source scheme isn’t exposed to the target asset’s growth either.
- Source scheme. Its risk matters. A liquid fund is not the same as a debt fund that takes more credit risk.
- Frequency. Weekly and monthly transfers average entry prices slightly differently; over a year the gap is usually small.
Common misconceptions
- An STP is not tax-neutral. Every transfer is a redemption, so gains in the source scheme may be taxable and exit loads may apply.
- It is not a way to time the market. An STP averages entry prices; it does not predict them.
In India: STPs generally work only between schemes of the same fund house, and each fund house sets its own minimums, frequencies and options.
Worked example
For illustration, assume ₹6,00,000 is placed in a liquid fund and ₹50,000 moves to an equity fund on the 5th of each month for 12 months. By the end of the year the full amount has moved, entering the equity fund at twelve different NAVs.
Figures are for illustration only — not a forecast or a recommendation.
Related terms
SIP
Systematic Investment Plan
A way to invest a fixed amount in a mutual fund at regular intervals, usually monthly, instead of investing everything at once.
SWP
Systematic Withdrawal Plan
An instruction to redeem a fixed amount from a mutual fund at regular intervals, used to draw a steady cash flow from an existing investment.
Lumpsum
Investing a single, larger amount at one time, rather than spreading it across instalments.
Liquid fund
A debt mutual fund that invests in very short-term money-market instruments, often used to park money needed soon.
Rupee cost averaging
Investing a fixed amount at regular intervals, so you buy more units when prices are low and fewer when they are high.
Rebalancing
Bringing a portfolio back to its intended asset mix after market movements have pushed it away from target.