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Systematic Transfer Plan Research Team | Posted On Tuesday, April 07,2009, 10:26 AM

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Systematic Transfer Plan



The SIP is the best direction to invest with regular cash flows. But what if someone has a enormous corpus and plans to invest in equities and at the same time is worried about the widespread uncertainty in the market? Still, the systematic investment route remains the most excellent vehicle to move forward. The gains could be improved by opting for a systematic transfer plan (STP) all along with the SIP. STP allows one to make cyclic transfers from one fund into another.

In an SIP, an investor characteristically parks the money in a bank savings account and a certain amount is transferred at a regular interval from the savings account to the fund house for buying into a specified equity fund.

In the case of an STP, the lump sum is invested in a liquid or a balanced short-term plan and is transferred at regular interval to a specified equity fund. For an illustration, one has Rs 60,000 to invest in equities; he can put the entire amount in a liquid plan and go for a monthly SIP of Rs 5,000 in an equity plan through a systematic transfer. However, the drawback of this investment process is its inability to invest in different fund houses. So, if you have an equity fund to invest through the SIP approach, you would have to choose the liquid fund of the identical fund house. But with slight difference in returns among different liquid funds and it’s approximately risk free status, STP is still a better stake.

Despite the fact that an investor earns only around 3.5% pa interest on the amount parked in the savings account, a liquid fund gives a higher return of 5-7% pa on the corpus with the same level of liquidity. Since these funds invest in safe and liquid debt instruments, the level of risk remains very low.

“An STP helps you accomplish your financial goals by investing a fixed sum in your preferred fund for a pre-determined number of installments. We would recommend the STP option to those sitting on cashand not defective to take the risk of lump-sum investment in the equity market.”This helps take the edge off any risk arising from volatility or improve the fund’s returns in a boom. Thus, an investor can match his risk enthusiasm with that of the equity scheme.

To this point, 48 investors have opted for the facility. Lowest edge to transfer from liquid fund to equity schemes is Rs 10,000 while the highest edge is Rs 5 lakh. An STP is best suited when markets have worn out or are volatile and uncertain. Through it, an investor takes advantage of the reasonably consistent returns of debt while banking on the potential of equities to create wealth for him in the long term.

“STP is definitely going to achieve ground as aspirations, possibilities and opportunities increase among the youth. I am sure that questions pertaining to efficient management of their wealth would be answered by STP and many such other facilities.” Industry experts see a relationship between systematic transfer plan and systematic investment plan but both the options fluctuate from each other by way of nature of cash flow.

"STP is as good as an SIP and a better option for investors with large amounts to invest. An SIP is targeted at investors with small regular cash flows. STPs are for investors with large unplanned cash flows." Nevertheless, fund managers feel, STP is yet to be promoted in India to its full coverage. Investors need to be sufficiently informed about it.

Systematic Transfer Plan (STP) is a package of transaction options, which aims toward offering you a irritate free, disciplined and efficient investment solution in all types of existing schemes in the market. Transfer either a fixed sum or just the appreciation accrued. By transferring only the appreciation in a scheme, you can guard your capital .

The continued ambiguity in the financial markets has led to a situation where investors are frightened about their investments and its performance. It is during these hard times that the various strategies available to the investor can be used to accomplish their objectives.

One significant strategy is the use of the systematic transfer plan to structure their mutual fund investments. This can be used very effectively by the investor to make sure that they are getting the best out of the money invested.

The Systematic Transfer Plan (STP) has some features alike to a Systematic Investment Plan (SIP) that is quite recognized to the investors. The final objective is a regular investment into equities that takes place on a monthly basis. However, there are times when the investor already has a lump sum and something more has to be done in order to ensure that the money earns good returns.

This will involve the practice of ensuring that this lump sum is invested properly at the initial juncture and then there is an amount that is transferred to equities in a regular approach. This will help the investor accomplish a build up in their portfolio of equities with a small amount of risk.

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