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  • PPFAS Mutual Fund :: Systematic Transfer Plans

    Demystifying Systematic Transfer Plans

    Today, many investors are aware of the benefits of investing in mutual funds through the SIP route. However, 'Systematic Transfer Plans' (STPs) are still a mystery to many. Here's an attempt to demystify it:

    In the case of mutual funds, a STP refers to transfer of money from one scheme to another at pre-determined intervals.

    Usually, STPs are undertaken from liquid schemes into equity schemes.

    For instance, Rs. 48000/- is invested into a liquid scheme and Rs. 4000/- is transferred into an equity scheme every month for 12 months.

    The scheme to which the money is transferred is known as the Transferee Scheme and the other is known as the Transferor Scheme. For instance, if money is transferred from a Liquid Scheme to an Equity scheme, the latter is the transferee scheme.
    Any unitholder of that particular scheme can avail of it. Usually, no specific restrictions are imposed.
    This could be daily, weekly, monthly or any other period offered by a Fund.
    Most mutual funds offer both, the online and offline option.
    Usually there is no upper limit. However, the lower limit will depend on the provisions contained in one / both the schemes. For instance, if the minimum investment in an equity scheme is Rs. 1000/-, we would not be permitted to transfer a sum of Rs. 500/- from the Liquid scheme into the equity scheme via STP. Also, the minimum number of transfers may be specified (Say, Minimum of 6 monthly instalments).
    STPs (like SIPs) enable us to divide our investment over long periods and reduce the scope for losses. Losses could still occur if the stock market only moves up for several months / years and then reverses suddenly and sharply.
    STPs (like SIPs) help us buy more units when markets are low and less when markets are high. Hence they enable us to profit from market fluctuations without us having to second-guess market movements. Consequently, it is not prudent to wait for a 'right time' to begin.
    No. The amount depends on your income, savings pattern and financial goals. It differs for each investor.

    However, the amount intended to be transferred, cannot be lower than the minimum investment amount specified in the Scheme Information Document (SID) of the respective Scheme(s).
    No. The period too depends on your financial goals.

    However, the number of intended STP instalments / the intended investment tenure cannot be lower than the minimum number / tenure specified in the Scheme Information Document (SID) of the respective Scheme(s).

    In general, the longer you undertake STPs into equity schemes the better it may be, as the volatility inherent in equity schemes usually reduces with the passage of time.
    1. It encourages discipline :
    Signing up for a SIP is good,..but since the money continues to remain in your bank account you may be tempted to use it for other purposes.

    However, if you sign up for a STP, the chance of being indisciplined reduces considerably as the money moves out of your bank account and into the liquid scheme at one stroke. Not seeing the money in your bank account could automatically reduce the temptation to spend frivolously.

    2. It may be quicker to start a STP
    STPs can usually commence within seven days of applying, while SIPs often take 15 days or more. It is also less cumbersome to commence an STP as the unitholder need not give any instruction to his/her Bank.

    3. Chance of earning higher returns:
    A STP requires you to first invest in a scheme (often, a liquid fund) and investors in liquid funds usually earn slightly higher returns than those who simply park their money in savings bank accounts.

    4. Reduces the scope for fear...
    Many times, investors refrain from investing money during market corrections, fearing further falls. The chance of such discontinuance reduces if money is already parked in a liquid fund and is moved periodically into an equity fund.

    5. ...and greed
    Soaring stock markets may tempt us to Invest large sums of money in one instalment, thereby increasing the chance of losses if markets correct suddenly. Investing in a liquid fund and then undertaking STP reduces the chances of suffering from bursts of 'emotional investing'.

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
    Investor Education initiative by PPFAS Mutual Fund

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
    © PPFAS Asset Management Private Limited. All rights reserved.
    Sponsor: Parag Parikh Financial Advisory Services Limited. [CIN: U67190MH1992PLC068970], Trustee: PPFAS Trustee Company Private Limited. [CIN: U65100MH2011PTC221203], Investment Manager (AMC): PPFAS Asset Management Private Limited. [CIN: U65100MH2011PTC220623]