STP — Systematic Transfer Plan Explained
A Systematic Transfer Plan (STP) transfers a fixed amount from one mutual fund to another at regular intervals. It's commonly used to gradually move money from debt to equity.
How STP Works
Invest lump sum in a liquid/debt fund. Set up STP to transfer fixed amount monthly to equity fund. Money in debt fund earns returns while waiting. Equity investment happens gradually (rupee cost averaging benefit).
When to Use STP
You received a lump sum (bonus, inheritance, maturity). You want to switch from one fund to another gradually. Rebalancing portfolio without timing risk. Moving from equity to debt as retirement approaches.
STP vs SIP
STP starts from a lump sum already invested. SIP comes from your bank account each month. STP money earns returns in source fund while waiting. Both provide rupee cost averaging benefit.