Invest a lumpsum through systematic transfer plans

Should you consider investing through systematic transfer plans (STPs) that can help you benefit from market opportunities? Know everything about STPs and how you can invest a lumpsum amount through STPs in this article.

What is a systematic transfer plan, and what are its types?

You can use a systematic transfer plan to shift your financial resources from one investment scheme to another instantaneously. Mutual fund houses also allow investors to do this periodically, allowing them to gain market advantage by switching to securities offering higher returns. STPs safeguard the interests of investors during market fluctuations, hence reducing the overall risk posed to their portfolios. STPs help individuals transfer funds between two selected mutual fund schemes and help them do so conveniently. A key condition to remember is that STPs allow investors to shift financial resources between funds operated by the same mutual fund company.

What are the features of STPs?

Here are the key features:

• As per conditions laid down by SEBI (Securities and Exchange Board of India), there is no minimum amount condition that investors must follow while investing through STPs.
• A minimum of six transfer of funds is required to start investing through STPs.
• Mutual fund companies charge no entry load, but some of them charge an exit load fee from the customer.

What are the benefits of investing with a STP?

• You can earn higher returns: STPs help you benefit from a change in market conditions, thereby helping you earn higher returns.
• Lump sum investments through STPs offer higher stability: You can use STPs to your advantage by diverting your funds into relatively stable investments during a volatile market phase. For instance, you can use STPs to invest in debt funds or money market instruments.
• You can benefit from rupee-cost averaging: One of the popular benefits of SIPs (systematic investment plans) extends to STPs as well. You can realise capital gains on individual securities by purchasing more units when their average price is low, and purchasing fewer units when the prices are high. 

Points to remember while investing with STPs:

• Do not expect a massive spike in returns immediately: You must keep your expectations in check while investing through STPs. You might not immediately notice an increase in returns after choosing an STP investment.
• You must have a good understanding of the market if you wish to choose the STP option: Seasoned investors who can understand market conditions well can better utilise STPs to earn higher returns.
• Consider the exit load and tax deductions too: You must account for these fees while calculating your high returns after choosing an STP.
• Market risks cannot be completely eliminated: While investing through an STP does provide a considerable level of stability, it cannot be completely eliminated. STPs expose portfolios to lower market risks, but the risk factor still remains, and you must continue to reduce it while taking any investment decisions in the future.

You can use a mutual fund lump sum return calculator to calculate your returns after choosing an STP. It is advisable for you to do this before investing in any fund through an STP.