How to set up STP in mutual funds

Mutual fund houses offer the facility to transfer MF investments periodically from one scheme to another. This facility is known as the Systematic Transfer Plan wherein the scheme from which the units are transferred is called the “source scheme” and the scheme into which the transfer takes place is known as the “target scheme”.

Two ways to use STP

• Park lumpsum funds in a low-risk debt fund and transfer periodically into a higher-risk equity fund, without timing the market.
• Lock the gain in an equity fund investment by switching from the equity fund to a low risk debt fund.

STP options

Many fund houses offer various variants of STP. In one, the investor can transfer a fixed amount regularly from source scheme to target scheme, whereas in another, the transfer may happen only on the occurrence of a defined trigger event or capital appreciation in the source scheme.

Process to set up STP
STP can be set up online using a broker /aggregator or fund house’s online MF transaction platform. Alternatively, a systematic transfer plan form can be fi lled up with all requisite details, signed by all holders, and submitted to the AMC. Details such as names of the source, target schemes, amount to be transferred, frequency and period of STP needs to be indicated in the form.

Points to note
Since switch amounts to redemption from the source scheme, it may have cost implications in the form of applicable load and/or capital gains tax.
STP is not allowed in a situation where a lien/pledge has been marked on the units.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)