STP Explained With Example

Now that we know what SIP is; let’s take a look at its cousin Systematic transfer plan.

Just like SIP STP is also an installment of a way of investing in mutual funds.  But in STP lump sum is already invested in a “safe scheme” and then after a certain period just like sip investment is transferred into target scheme.

To understand STP more thoroughly let’s take an example.

1. Profit Singh read an article about benefits of Mutual Funds by Wealthunter and Decided to invest RS 500,000 in mutual funds, but he is investing in mutual funds for the first time and that too in equity funds and therefore he decides that he should take a little bit of time to study the market.

Now MR. Singh requires a little bit of time to study market, but Mr. Singh knows time value of money, Therefore MR Profit Singh decided to go with our hero of this blog, STP

And he decides to invest his lump sum in a safe debt fund so that he can earn decent amount of interest in his investment

Until he is able to get a fair idea of market

A few months later had gained somewhat fair experience in the market and he is now ready to invest. But because he had invested in STP all he needs to do is to inform his fund house about the scheme of his choice and amount decided to invest at regular interval which may be monthly quarterly etc and a form of SIP will be started to your choice of Fund. But instead of Sip debiting from your bank account, it will be debited from safe scheme you initially invested your money in.

But hang on you need to know a little bit more about STP before you are good to go.

Minimum transfer required are 6 in number, therefore planning your STP is highly imperative.

Investment is generally transferred from

Equity in debt when market is falling

And debt to equity in case of rising in market

STPs are 3 types

• Fixed STP in which only fixed amount can be transferred
• Capital appreciation STP where only profit earned will be transferred
• Flexi STP in which variable amount can be transferred

So all in all STP Is a great form of investment plan which to minimizes risk and helps to earn that extra dough

And don’t worry About MR Profit Singh HE will be back after all he believes in that not all heroes wear cape

Until next time happy investing