Knowledge Center

What is STP?

 

Systematic Transfer Plan (STP) is a facility offered by mutual fund schemes to facilitate investors transferring a specified amount in as disciplined manner from one scheme to another usually from liquid/short term debt funds to equity funds. Investors usually adopt STP strategy to make money work for them, when they are idle by staggered investments from a fund, which is less volatile and have low risk to a fund which is prone to higher volatility.  Systematic Transfer Plan helps to keep a balance of risk and return.

 Let’s understand STP with an example.

An investor gives instruction to transfer Rs 5000 from a Ultra Short Term Fund to Mid cap fund every month. In January 2020, he holds 5000 units of Mid Cap Fund and 3000 units of Ultra Short Term fund of the same mutual fund house.

Let’s say in February, the NAV of the Ultra Short Term Fund is Rs 20.

Therefore, number of units required to be redeemed from debt scheme = 5000/20 = 250 units

After STP for the first month, the unitholder will have 2750 units in the Ultra Short Term Fund.

Rs 5000 will be used to purchase additional units of the Mid Cap Fund. Let’s say the NAV of the Mid Cap Fund in February 2020 is 50.

Therefore, number of units of the Mid Cap Fund to be purchased = 5000/50= 100 units

The unitholder will now hold 5100 units of the Mid Cap Fund after STP from Ultra Short Term Fund.

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Disclaimer:

The section Knowledge Centre on this website is a platform for WhiteOak Capital Mutual Fund to spread awareness and educate investors about various Mutual Fund products. It should not be construed as an offer to sell nor is a solicitation of an offer to buy units of any of the schemes of WhiteOak Capital Mutual Fund. Figures indicated here are for illustrative purpose only and does not correspond to any live or historical data. The information herein above is meant only for general reading purposes and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision. None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material.
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