What is STP in Mutual Fund What is STP in Mutual Fund

What is STP in Mutual Fund: Complete Guide

Have you ever wondered about transferring your money from one mutual fund to another? The good news is that you can with Systematic Transfer Plans (STPs)!

STPs help investors take advantage of a streamlined and systematic process of investing in mutual funds online. But is that all? 

Let us look at what is STP in mutual fund along with its types and benefits with much more depth in this article. 

What is a Systematic Transfer Plan?

A Systematic Transfer Plan allows you to move your investment from one mutual fund to the other in a disciplined and structured way. 

For example, you can use a STP to park money in a liquid fund and transfer it to an equity fund of your choice on a date that suits you.

STPs help minimize the impact of market fluctuations with a streamlined process that moves money into an investment automatically. 

These instructions are, of course, set by you – the investor. As a result, you benefit from a seamless transfer process as the money is adjusted automatically between the chosen funds. 

However, keep in mind that STP can only transfer your money between different types of mutual funds operated by the same asset management company. 

The inter-shifting process that requires shifting funds from one asset management company funds to another cannot be executed. 

Every STPs transaction is subject to a tax deduction if a capital gain is made. Under short-term gains, redemption that occurs before 3 years under such mutual funds is deductible at 15%. 

Long-term gains on the other hand are also subject to tax deductions but the amount is determined by an investor’s annual income.

Types of Systematic Transfer Plans

There are three distinct kinds of STPs in mutual funds. Let us look at each type of STP in detail: 

1. Flexible STP

The flexible STP is a process where the fund transfer takes place based on the needs of investors. 

Based on factors such as market volatility and scheme performance predictions, the investor might wish to transfer funds. 

This type of STP accommodates flexibility based on the demand of an investor. 

2. Fixed STP

Under this type of STP, the amount to be transferred from one mutual fund to another is fixed as decided by the investor. 

No changes can be made based on market conditions from time to time. 

3. Capital Systematic Transfer Plans 

The capital systematic transfer plan transfers all the gains accrued from a fund’s market appreciation to another fund that shows growth potential. 

Investing in STPs is best suited for individuals who have limited resources but want high returns by investing in the stock market.

Likewise, it is also ideal for investors who wish to reinvest their funds in securities that are more secure such as debt instruments in case of ongoing market fluctuations. 

Benefits of Systematic Transfer Plan

Several advantages of STPs make it a good choice for different investors, irrespective of their risk appetite. Some of the key benefits derived from STPs in mutual funds are: 

1. Comparatively Better Returns 

The option of a STP allows investors to shift their funds to a better-performing fund in cases of market swings. 

As a result, the investors can maximize their profits from buying and selling securities in the capital market. 

2. Stability 

Another advantage of STPs in mutual funds is that it allows investors to transfer their funds from safe investment schemes such as money market instruments and debt funds in case of high volatility in the stock market.

It helps in ensuring guaranteed returns by presenting safe investment opportunities. 

3. Rupee Cost Averaging

This method is followed in mutual funds through STPs that help investors lower the average cost incurred while investing. 

Rupee cost averaging is an investment technique where the investors invest in funds when their average price is low and sell them when the market value increases. 

You’ll notice that this is one of the similarities between STPs and Mutual Fund SIPs

4. Optimal Balance 

The STPs intend to create an optimized balance for investors with a combination of investment in equity and debt instruments. 

It balances the risk and returns for all investors. However, in the case of investors who are risk averse, the investment is made mostly in debt securities. 

As against this, in cases when the investors have a high-risk tolerance, more equity investment is done. 

Keep in mind that the STPs are a long-term scheme and no instant gains should be expected. All investors must keep this in mind before opting for STPs in mutual funds. 

Additionally. You must have a good knowledge of the different securities of the market to execute an STP and gain the maximum profits from the transfer. 


This blog answered the question of “What is STP in Mutual Fund”! The benefits gained from a Systematic Transfer Plan make it a viable choice for investors desiring to move their investments from one mutual fund to another in case of market fluctuations. 

With this systematic procedure, they can get the funds transferred in a way that helps earn them profits. 

By the way, we recently launched Direct Mutual Fund Investments for our users. Check out the video that walks you through it!