Here is a collection of must-see videos that will help you understand the world of mutual funds. Happy Investing!

Financial discipline is similar to going on a diet. It is never easy. There are plenty of temptations - an urge to over spend, letting emotions control your investments and confusion due to the problem of plenty - look at the plethora of options available in the market, with the returns of one scheme trying to beat the other. Who does one turn to for advice? Dependency on one person or your financial advisor alone is also tricky. Which is why people often turn to mutual funds.

The argument here is that experts are taking care of your investments. Depending on your investment appetite and risk appetite, mutual funds come with a good mix of both equity and debt, which helps you earn an interest of 12-15% or more depending on the type of investment schteme you have picked and how the markets have performed overall. Yet, selecting a mutual fund can be confounding due to the raft of choices available.

Episode 8 I Beginner

STP - Systematic Transfer Plan

What is a Systematic Transfer Plan or STP?

As an investor, you are able to invest a lump sum amount in a scheme and regularly transfer a fixed or variable amount in another scheme. During volatile markets, an STP helps you to periodically transfer funds from one scheme (source scheme) to another (target scheme) in a single instruction, without having to give the AMC multiple instructions to redeem and reinvest.

When the markets are doing well the transfers generally are made from debt to equity and vice versa if the market is not performing well.  If a fixed sum is transferred from the source to the target scheme, then it's called Fixed STP, and if the sum transferred is the profit part of the investment of source scheme, then it’s called Capital Appreciation STP.

Types of Systematic Transfer Plans

Capital Appreciation: Only the capital appreciated is transferred from source fund to the destination fund

Fixed STP: The transfer amount pre-decided by the investor is periodically fixed depending on his financial goals.

Flexi STP: As the name suggests this plan is flexible where you can choose to transfer different amounts depending on the market volatility from the source fund to the target fund.

Features of a Systematic Transfer Plan

There is no entry load when you are transferring your capital but SEBI or Securities Exchange Board of India allows fund houses to charge exit load up to 2% and the AMC or Asset Management Company calculates the exit load based on your investment tenure and fund type. An STP enables discipline and planned transfer between two mutual fund schemes. Each transfer you make from or to another fund is considered as a fresh investment and is subject to tax. If you move your capital from a debt fund it will be subject to short-term capital gains tax.

How is it beneficial?

You can earn steady returns if you invest via STP because the amount in the source fund will continue to generate interest until you transfer the entire amount. You will be able to manage risks by moving your funds from a risky asset class to a less risky one, hence helping you rebalance your portfolio. While your money is getting transferred from one fund to another fund, your fund manager will continue to purchase additional units, therefore, giving you the rupee-cost averaging.

STP is an amazing choice for investors who want to invest in a lump sum but don’t want to invest them all at once.