If you suddenly receive a large amount – such as selling property or in a legacy, it can be difficult to handle. The option to put these money in the stock market simultaneously is exciting, but it also has the risk of market fluctuations. Here is the systematic transfer plan (STP) – a smart and disciplined method. With this, you can gradually transfer your amount to mutual fund schemes, so that your money will be increased while staying away from the risk.
What are Systematic Transfer Plan (STP)?
STP is an investment strategy through which you can transfer a fixed amount at regular intervals from one mutual fund scheme to another within the same fund house. Generally, this transfer occurs in a low -risk date or liquid fund equity funds. This method prevents the risk of lump sum investment in market volatility. Also, gives you a chance to enter the market in a slow and controlled manner.
How does STP work?
● Initial investment: First of all you put your entire amount in a safe, low-ups of funds, such as date funds or liquid funds.
● Transfer at fixed intervals: You set a plan in which a fixed amount from this fund is added to equity funds every week, month or quarter.
● Automatic Process: This transfer continues to be done at your own fixed time. During this time the remaining amount remains in the date fund. Returns on the remaining amount continue to get completely in the equity fund.
Major benefits of STP
● Cost of investment average: By investing at regular intervals, you buy more units at low prices and when the prices are high, you buy low amounts. This reduces the average purchase price and limits the impact of market volatility.
● Reducing risk: Compared to lump sum investment, STP enters the market slowly. This reduces the risk of investment at the wrong time and enters the equity market safely.
● Constant returns: As long as your zodiac does not go to the equity fund, it keeps earning returns in debt funds. Often this amount is more than the interest found on a savings account.
● Disciplined investment: Money in STP is engaged in your money investment plans due to automatic transfer (automatic withdrawal). This is a disciplined method of investment. This prevents decisions or hasty decisions.
● To balance the portfolio: When you are close to your economic goal, STP can also be used to shift money from equity to date funds. This makes the risk limited and your profit is safe.
How many types are STPs
● Fixed stp
Every time a certain amount transferred, which keeps the investment stable.
● Flexible STP
The transfer amount can be reduced or increased according to the market status or your need.
● Capital Appreciation STP
In this, the amount of profit (growth) from your source fund is transferred. In such a situation, the principal remains in the source fund and keeps earning.
How to set STP
1. Choose a source fund (usually a date or liquid fund) and a target fund (usually equity funds), both should be of the same fund house.
2. Set the amount of transfer and time (weekly, monthly or quarterly).
3. Start offline STP by submitting the form online from your AMC portal or by submitting the form in the office of fund house.
4. Review your investment from time to time and change the plan according to your goal or market status if needed.
If you have a lump sum amount and you want to invest with understanding without taking risks, Systematic Transfer Plan (STP) is a great option. You average the cost of investment by slowly transferring your money from date funds to equity funds. Also, the path of disciplined investments, limiting the risk, follow the path of investment. Until your money is completely transferred, you also get returns on it. If you want to lift “Nivesh Ka Sahi Kadam”, then definitely adopt STP. Complete the goals set for your long time safe and smartly.
Watch this video and learn how the systematic transfer plan can increase your lump sum investment in a safe and smart way.
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Disclaimer: Mutual fund investment is subject to market risk. Read all the documents related to the scheme carefully before taking the investment decision. Performance of a fund in the past is not a guarantee of performance in future.