The best way to approach uncertain market conditions is to invest in a staggered manner through systematic plans.

This method of investment ensures averaging out of the cost by buying more units when prices are low and less units when prices are high.

Systematic Transfer Plan (STP) is a variant of SIP. In SIP, the amount is debited from your bank account and invested in the mutual funds.

In STP, the lumpsum money is first invested in one mutual fund scheme and then transferred to other schemes at regular intervals. STP scores over SIP as the invested sum in the source scheme is expected to generate relatively higher returns than the 4 to 6 per cent offered in savings account.

How it works

In STP, the scheme that is considered for lumpsum investment is called the source or transferor scheme and the scheme to which the amount is transferred is called destination/target/transferee scheme.

Since no AMC (asset management company) or fund house allows inter-AMC transfer, the source and target schemes should be chosen from the same AMC.

Many AMCs allow you to choose any open-ended funds, including equity, hybrid and debt funds (except ELSS when lock-in and close-ended funds) as source scheme.

Investors have to be aware about the applicable exit load period; any transfer is treated as sale and exit load is charged if sold within the exit load period.

For instance, most of equity funds charge exit load of one per cent if the units are sold within one year from the date of allotment.

Hence, it is advisable to consider liquid fund or ultra short-term fund as the source scheme as it does not carry any exit load.

The target scheme may be one or many that you can choose from the same AMC.

You can initiate transfer at regular intervals — daily, weekly, monthly, quarterly or half yearly.

Investors can choose any open-ended scheme as target scheme such as equity, including ELSS, hybrid or debt schemes based on the objectives.

Variants in STP

Most of the AMCs offer STP in two variants. One is normal STP and another is capital appreciation STP.

The normal STP is a plain vanilla STP, wherein the investor is allowed to specify the fixed amount that is to be redeemed from the source scheme to transfer to the target scheme.

Under capital appreciation STP, the investor will be eligible to transfer the entire or part of capital appreciation amount that appreciated during the period.

The capital appreciation STP is available only under the growth plans. Dividend transfer plan is an STP that allows investors to transfer the dividend amount to other schemes or bank accounts.

But note that under STP, investors cannot transfer the amount from a scheme to the investor’s bank account.

AMCs provide another facility called systematic withdrawal plan (SWP) that facilitates transfer from schemes to the investor’s bank account.

Apart from regular STP, many AMCs also offer customised value-added STPs such as flexi STPs to the investors.

For instance, Kotak and IDFC mutual funds allow investors to transfer an amount from source scheme to the target scheme based on the price-to-earnings (PE) of the Sensex or Nifty 50.

Other fund houses such as HDFC, Axis and DSP BlackRock follow in-house formula, while Reliance follows trigger-based model to decide the transfer amount on every interval.


STP is suitable for investors who have a lumpsum money in hand and who want to invest in equity funds during volatile or peak equity market conditions.

It serves as a good platform to earn relatively higher returns than the bank account on the the lumpsum.

Besides, investors who want to rebalance their asset allocation gradually can choose the STP option.

Especially, investors in the retirement age can consider STP to transfer their accumulated corpus from risky assets (equity) to relatively safer assets (debt or liquid funds or MIP).


Apart from the exit load, investors also have to take note of taxation in an STP transaction. If the source scheme is an equity-oriented scheme, then the redemption (that is, the transfer) of units within a year attracts short-term capital gain tax (STCG) of 15 per cent.

Redemption executed after a year is exempt from tax. If the source scheme is non-equity oriented scheme (debt fund), the redemption of units within 36 months attracts short-term capital gain tax, which is taxed as per the investor’s tax bracket, while the redemption after 36 months qualifies indexation benefit that is taxed at 20 per cent.

Similar rules also come into force when you sell from the target scheme.