Systematic Transfer Plan (STP)

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Transcript

Welcome back. So, far we have seen systematic investment plan si P and systematic withdrawal plan. Now, let's see a combination of the two in something which is known as systematic transfer plan. Systematic transfer plan is a plan that allows investors to give consent to the AMC to periodically transfer certain amount of units from one scheme to another scheme. Now, the very outset we must understand that it is transfer of units which means we are withdrawing from one mutual fund and investing in another mutual fund. Now, when we are withdrawing from one mutual fund that withdrawals always subject to taxes etc.

In STP instructions can be given to make the transfers daily, weekly, monthly or quarterly. Earlier it was possible to only make transfers from one fund to another fund of the same AMC. However, due to digitization, now it is possible to transfer wealth from one mutual fund or mutual fund between two different MCs as well. Now transfer can be made from a debt fund to a equity fund or from an equity fund to a debt fund or in any combinations which is possible. In India some MCs insist on a minimum amount of rupees 12,000 in sdps However, there are MC threes do not insist on such limitations. Please check the rules as applicable with your MC and please check the rules in different countries as well.

However, to apply for for STP, the investor needs to do at least six capital transfers from one mutual fund to another. There is no entry load when one does STP. However, exit loads generally applies when one conducts a STP. In India, it is allowed for the MCs to charge up to 2% of exit load in sdps. stps enable a disciplined and planned transfer of funds between two Mutual Fund Schemes. Now in generally, investors initiate STP from a debt fund to equity fund.

We will see the reason for this stps are very excellent strategy for people, people who have one lump sum amount of money or people who are approaching their retirement. Now, the idea is that take the lump sum amount of money and put it in a debt fund. Investing in a debt fund like a liquid fund ensures that the investor gets a higher return than putting this money in savings deposit of x deposits. Also by putting in a debt Fund, the risk of putting such a huge amount of money in mutual fund is very minimal or non existent. Now, once the money has gone into debt fund, it is earning interest which is more than fixed deposits are more than savings banks deposit. However, it is not able to take advantage of equities so initiate The SDP from the debt fund to the equity fund.

Now, putting it in SDP means that in short in small intervals, a small amount of money will get transferred from debt to equity fund. Now, this ensures that the investor gets advantage of dollar cost averaging. So, that the price of at least the equity fund is purchased is the lowest dollar cost averaging it basically means that when the cost of the mutual fund is lower, you get higher number of units. And when the cost of the mutual fund is higher, you get lower number of units, the mutual fund that you're purchasing into. Now, due to the fluctuation of market it has been seen that by dollar cost averaging, we ultimately the average price that we pay for the purchase is always lower than what we would have done if we had invested all of a sudden in a lump sum. Thank you for listening.

See in the next lecture.

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