What Is STP In Mutual Fund?
- 8th September 2025
- 04:00:00 PM
- 9 min read
The securities market constantly fluctuates depending on various scenarios. As a result, it always feels risky to invest in it. However, there are several tools and techniques you can use while investing to offset risks and ensure stability. One of them is STP in mutual fund.
The STP full form in mutual fund stands for Systematic Transfer Plan, which allows you to relocate funds from one mutual fund to another. This blog explains what is STP in mutual fund with more details.
What Does STP Denote in a Mutual Fund?
STP in mutual fund is an investment tool provided by mutual funds. This unique investment option enables investors to transfer a fixed amount of funds from one mutual fund scheme to another in the same fund house at different intervals.
Mostly, STP allows the transfer of funds from a liquid or debt fund to an equity fund. The STP is beneficial for investors who have a lump sum investment but want to avoid market risks.
Since the transfer occurs periodically, investors may benefit by changing securities when they offer higher returns. This not only safeguards the investors’ interests in market fluctuations, but also minimises the associated risks.
How Do Systematic Transfer Plans Operate?
STP in mutual fund works by transferring a fixed amount from a debt or liquid mutual fund scheme to an equity fund scheme at regular intervals. Let us understand how it works with an example.
When you start an STP, you must choose the source fund, the target fund, a fixed amount which will be transferred, and the time frequency, daily, weekly, monthly, or more. For example, if you invest INR 1,00,000 in a liquid fund and start a monthly STP of INR 5,000 in an equity fund, your amount will be automatically shifted every month for 20 months.
Essential Features of a Systematic Transfer Plan
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Automatic Transfer of Funds
STP in mutual fund ensures automatic transfer of funds from one mutual fund scheme to another. This makes this investment option hassle-free and convenient. This helps investors stay committed to their investments.
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Flexibility
STP provides investors the right to choose the investment amount they want to transfer and the time when it will be transferred, such as monthly, quarterly, and more. It provides the flexibility to customise all of these according to the market conditions and your financial goals.
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Rupee Cost Averaging
STPs also incorporate rupee cost averaging, which can be useful in volatile markets. With the regular transfer of a fixed amount, you can purchase more units of a fund when its net asset value (NAV) is low and fewer units when it is high. Like this, it can potentially reduce the average cost per unit of the fund over time.
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Diversification and Risk Mitigation
While moving your money from liquid or debt funds to equity funds, the STPs also facilitate diversification across all asset classes. It helps to minimise the risk of your entire portfolio.
Different Types of Systematic Transfer Plans
Now that you know the STP mutual fund meaning, let us discuss the different types of it:
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Flexible STPs
This type of STP allows you to choose the amount you want to transfer from one mutual fund scheme to another based on your immediate requirements. Considering the market dynamics and the scheme’s performance, you can easily choose a smaller or larger portion of your investments which you want to transfer.
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Fixed STPs
A fixed STP in mutual fund is a process of transferring a fixed amount from one scheme to another, decided by you. This type of STP can be beneficial for you if you want a steady and predictable income stream while staying invested in the market.
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Capital Systematic Transfer Plans
The capital systematic transfer plans transfer your total profits from the market appreciation of a fund to another scheme which has a higher growth potential.
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Advantages of a Systematic Transfer Plan
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Lower Transaction Costs
STP in mutual fund charges lower transaction costs for investors as it facilitates the fund transfer among the same fund houses.
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Capital Preservation
STP also allows you to preserve your capital while enjoying the gains. As previously discussed, you can benefit from fixed STP to ensure a steady income stream.
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Higher Returns
Since it transfers funds to more profitable mutual fund schemes in a volatile market, STP also helps you to earn higher returns on your investments.
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Tax Benefits
You can avail indexation benefits on capital gains while transferring funds from debt or liquid to equity schemes within the same fund house. This helps you to save taxes for the long run.
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Proper Investment Method
The STP comes with a proper and well-controlled method, in which it systematises regular investments. This also restricts investors from making emotional purchasing decisions influenced by market volatility.
Disadvantages of a Systematic Transfer Plan
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Taxation
You need to pay short-term capital gain (STCG) tax while investing in STP. The STCG tax applies to STP since the units are redeemed from one mutual fund scheme and are invested in another.
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Exit Load
Exit loads are also applicable in STP since you are switching from one scheme to another, especially when you are redeeming units in a short time frame.
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Limited Fund Choice
STP in mutual funds switches your investments only to the mutual fund schemes offered by the same fund houses, which limits your investment choice.
Who Can Benefit the Most by Investing in A Systematic Transfer Plan?
STP in mutual fund is beneficial for investors who have limited financial resources but want higher returns from stock market investments. Below are the groups of people who can benefit from STP:
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Retirees
Retirees can benefit from STP since they depend on their savings for a steady income. STP allows them to transfer a fixed amount at regular intervals and ensure a reliable source of income.
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Salaried Individuals
Individuals earning a salary each month can also benefit from the STPs. They can grow their wealth systematically by putting a small portion of their salary in the STP.
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Long-Term Investors
If you have long-term investment goals, STP can allow you to use the power of compounding. It allows you to benefit from the market growth over time.
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Risk-Averse Investors
Investors with lower risk tolerance who want to avoid market volatility can also benefit from STP. You can enjoy the stability offered by debt schemes while also having part of your funds invested in equities for growth potential.
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Tax-Conscious Investors
If you want to save money while paying ṭax, fixed STP can help you by offering indexation benefits on capital gains. This allows you to efficiently grow your wealth by avoiding tax.
Factors to Consider Before Investing in a Systematic Transfer Plan
Investing in STPs may also carry inherent risks. You must consider the factors below before investing in STPs:
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Long-Term Goals
Invest in STPs only when you want to invest for the long term. You can get better returns from STPs if you have long-term investment goals.
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STP Requirements of SEBI
You must be aware of the Securities and Exchange Board of India’s (SEBI) guidelines, which mandate a minimum of 6 STPs, even if a fund house makes the investment plan.
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Taxes and Exit Loads
Do not forget to calculate the applicable taxes and exit loads while investing in STPs, since they can significantly affect your return on investments (ROI).
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Market Factors
Always become aware of the market risks before putting your money in STPs. Stay up-to-date about the latest market trends, especially during market shifts.
Final Thought
STP in mutual fund is beneficial for investors with a lower risk appetite, long-term investment goals, self-employed individuals and more. The primary advantages of STP are lower transaction costs, higher returns, capital preservation, and tax benefits.
However, the major drawbacks of investing in STP are market risks and the impact of taxes and exit loads on returns.
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Frequently Asked Questions
1. Is a systematic transfer plan beneficial for investors?
Yes, STP in mutual fund offers numerous benefits to investors. These include lower transaction costs, tax benefits, capital preservation, and a proper investment method.
2. What benefits does the systematic Transfer Plan offer to deal with volatility?
STP in mutual fund helps you to deal with market volatility by shifting your investments from one scheme to another. This process helps investors gain an advantage by changing securities while offering higher returns.
3. Is an STP better than SIP?
Both STP and SIP have different roles. STPs are better when you have a lump sum amount, since they offer you a plan to enter the market while managing volatility. Contrarily, SIPs are good for long-term growth with regular investments. This makes them a perfect choice for investors who want to build wealth over time.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
