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Systematic Transfer Plan: A Hidden Tool To Make Your Investment Journey More Robust

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Systematic Transfer Plan: A Hidden Tool To Make Your Investment Journey More Robust

Financial resilience is the ability to withstand and recover from economic shocks, such as market volatility, inflation, job loss, or health emergencies. It is a crucial aspect of financial well-being, especially in uncertain times. One way to build economic resilience is to enhance wealth with a systematic transfer plan (STP).

What is a Systematic Transfer Plan?

An STP is a way to invest money in small parts over time. It means moving cash from one type of investment to another every month or every few months, usually from a debt fund to an equity fund.

Simply put, say you have Rs. 1 lakh to invest in a debt fund and get 6%-8% interest. Since the market is performing well, you are eyeing a fund with higher returns, say, 16%. So, you want to transfer money from your debt fund to this fund but are unsure about the entry point.  

So, rather than withdrawing the amount and making a lumpsum investment, you start an STP, which transfers Rs 10,000 every month. from the debt fund to this new fund. Within ten months, all the money is transferred, providing you with all the benefits of SIP and avoiding market risk. 

In a nutshell, STP is just like a SIP, but instead of transferring money from a bank account to a fund. STP transfers money from one fund to another.

Types of STPs

There are various types of STPs depending on different needs:

  • Fixed STP: Here, a fixed amount of money is transferred from the source scheme to the target scheme at a fixed interval.
  • Flexible STP: This gets a bit advanced. The amount of money transferred from the source scheme to the target scheme varies according to a predefined formula or a trigger value.
  • Capital Appreciation STP: Only the capital appreciation or the profit earned from the fund is transferred to the target fund at a fixed interval.

What are the Benefits of an STP?

An STP offers several benefits for investors who want to enhance their wealth and build financial resilience. Some of them are:

  • Risk reduction: An STP reduces the risk of investing a large amount at the wrong time or high price. By transferring money in small installments, you can avoid the impact of market fluctuations and buy more units when the prices are low and less when they are high. This helps you lower your average acquisition cost and improve your returns in the long run.
  • Discipline: An STP instills discipline and regularity in your investment habit. By automating funds transfer, you can avoid the emotional biases and behavioral errors often affecting investment decisions. You can also save time and effort by not having to monitor the market movements and timing your entry and exit.
  • Flexibility: An STP allows you to choose the amount, frequency, and duration of the transfer per your convenience and financial goals. You can also modify or stop the STP at any time, subject to the terms and conditions of the fund house. Moreover, you can choose from different types of STPs, such as fixed STP, flexible STP, or capital appreciation STP, depending on your risk appetite and return expectations.
  • Tax efficiency: An STP can help you to save tax on your investments. Transferring money from a liquid or debt fund to an equity fund is considered a redemption and a purchase, respectively. Therefore, you must pay capital gains tax on the profits from the liquid or debt fund. However, if you hold the liquid or debt fund for more than three years, you can benefit from indexation, which reduces your tax liability by adjusting the purchase cost with inflation. Also, the gains from the equity fund are tax-free if you hold them for more than one year.

How to build financial resilience through STP

  • Seize the market opportunity: When the market presents a growth prospect, start an STP to transfer money in riskier funds for higher returns. 
  • Avoid the fall: When the market shows signs of collapsing, you can start an STP to transfer money from risky funds to less risky funds.
  • Diversification: Every investor makes the mistake of investing in a small amount of funds initially, but having all your eggs in one basket is never wise. STP helps you to balance your investments throughout the different funds.


An STP is a smart and effective way to enhance wealth and build financial resilience. It helps you to invest in a disciplined and diversified manner, reduce your risk and tax burden, and benefit from the growth potential of equity funds. If you have a lump sum amount to invest and want to avoid the timing risk, you can start an STP today. However, before investing, you should consult your financial advisor and understand an STP’s features, benefits, and risks.

*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considerea d as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.


  1. What is the difference between a SIP and a STP? 

    A SIP (Systematic Investment Plan) is a way to invest a fixed amount of money in a mutual fund scheme at regular intervals, usually from a bank account. An STP (Systematic Transfer Plan) is a way to invest a lump sum amount of money in a mutual fund scheme in small parts over a certain time, usually from another mutual fund scheme.

  2. How does an STP help in building financial resilience?

    An STP builds financial resilience by reducing the risk of market volatility, diversifying the portfolio, and achieving long-term wealth creation. An STP also helps save tax by using indexation benefits for debt funds and tax-free gains for equity funds.

  3. How to stop or modify an STP?

    You can stop or modify an STP at any time, subject to the terms and conditions of the fund house. You just need to fill out an STP cancellation or modification form and submit it to the fund house with the necessary documents. You will receive a confirmation email or SMS for the same. You can also stop or modify an STP online or through the fund house’s app.

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

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