Do you know the importance of ‘Systematic Transfer Plan’? – MoneMindz

By | 13/06/2018
Systematic Transfer Plan Financial Advisory| MoneyMindz

MoneyMindz – India’s First Free Online/On-call Financial Advisory Portal | Systematic Transfer Plan

What is Systematic Transfer Plan?

A Systematic Transfer Plan transfers investment from a particular asset to another asset over a period of time. You can maintain a balance between risk and return. In India, however, there are few companies offering an option to transfer money from equity to debt fund.

Types of Systematic Transfer Plans:

Fixed Systematic Investment Plan is where investors withdraw a fixed sum of investment from one investment to another. Capital Appreciation Systematic Investment Plan is where the investor takes the profit part of one investment and invests it in another investment. A Flexi Systematic Transfer Plan, as the name reveals, is flexible and you can transfer capital from the source fund to the target fund.

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Features of Systematic Transfer Plans

1. Minimal Investment

A standard minimum investment usually isn’t there but some Asset Management Companies ask for a minimum investment of Rs 12000.

2. Planned transfer

Lucrative and disciplined transfer of funds is done between two mutual fund schemes. In to the volatile market, Systematic Transfer Plan helps investors periodically transfer funds from a source scheme target scheme. This helps save time and effort by compressing many instructions needed for redemption from one scheme to another.

3. Scope for more returns

You get higher returns if you go for Systematic Transfer Plans as you initially invest a lump sum in a debt fund such as liquid fund.

4. Rebalance Portfolio

The portfolio has to strike a balance between debt and equity. Systematic Transfer Plans rebalance portfolios by moving investments from debt to equity and equity to debt.

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Merits of Systematic Transfer Plans:

1. Consistent Returns

Transfer your capital to a target equity fund while you are invested in a debt or liquid fund so that you not only will receive returns of the equity fund you are transferring into but also remain protected due to the fact that a part of your investment stays in debt.

2. Cost Averaging

A certain amount of money gets invested in a target fund at regular intervals. It helps in averaging out the cost of investors by buying more units at a lesser Net Asset Value (NAV) and vice versa.

3. Portfolio Rebalancing

Investments are allotted from debt to equity and vice versa in a Systematic Transfer Plan. If your investment in debt rises, money is reallocated to equity funds through an STP. If your investment in equity rises, money is switched from equity to a debt fund.

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