Systematic Investment Plans (SIPs) are popular and are an easy way for new retail investors with limited liquidity to systematically invest in mutual funds from their savings accounts.
Systematic Transfer Plan (STP), on the other hand, allows one to transfer a fixed quantity of units from one unit to another from time to time. mutual fund The plan to another scheme on a pre-specified date, as a committed amount can be systematically transferred from debt to equity funds and help investors achieve the desired rupee cost averaging.
“The basic premise of both SIP and STP is to benefit from rupee cost averaging and consequently invest in any systematic scheme ignorant of market conditions. SIP is more suitable for new retail investors with limited monthly liquidity, while STP may be more suitable for mature mutual fund investors,” said Yogesh Kalvani – Head, Investments – Incred Wealth.
STP is an option for investors who have surplus/lump sum amount but do not want to keep the money idle and also want to take advantage of rupee cost averaging. In case of STP, investors usually put their money in liquid/debt mutual funds and then make systematic transfers from there.
Regarding using STP effectively, Deepak Jain, Head-Sales, Edelweiss MF suggests that one can do so at a fixed interval or at some pre-determined triggers, for example a certain % of market decline . “For salaried people with fixed inflows, a simple SIP can work, but for those who do not get regular income or cash flow, STPs are useful,” Jain said.
“The simple rule is that when the market is turning bearish and if you have invested in debt funds, you can think of systematically shifting to equity funds to buy more units. The tenor of the transfer plan needs to be decided keeping in mind the goals and risk appetite of the investor. Tarun Birani, Founder and CEO, TBNG Capital Advisors said, “When the market is bullish, we can book some profits and protect capital by systematically transferring funds from equity mutual funds to debt mutual funds. .
STP is nothing more than selling from one mutual fund and buying another mutual fund. Whenever there is a sale, there will be taxation implications. In case of STP, the fund needs to be redeemed from the existing debt/liquid fund for shifting the fund, which may attract capital gains tax.
“If you are parking your investment in a liquid fund or other debt fund and start an STP, every STP debt fund will attract STCG taxation. And vice versa is also true. But the growth of liquid funds and systematically equity funds The taxation implications would be negligible, considering the investment in the investment, Birani said.