STP Systematic Transfer Plan
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STP is a way through which one invests a lumpsum amount in one scheme & regularly transfers a pre-defined amount into another scheme of the same mutual fund house. In the long run, STP helps in cutting down risks to a considerable level & earning good returns. Basically, STP means transferring an investment from one asset or asset type into another asset or asset type. This transfer process happens gradually over a period of time.

Further, STP can be classified into three parts

Fixed STP - Here the investors take out a fixed sum from one investment to the another.

Capital Appreciation STP - Here the investors take out the profit part of the investment & invest it in another.

Benefits
Helps in Re-balancing Portfolio

Through STP, one can balance their portfolio effectively as this method allows the allocation of investments from equity to debt or vice versa. If your investment equity goes up then it can be switched from an equity to a debt fund.

Consistent Returns

Through STP one can transfer the set amount to a target equity fund while still being invested in a debt or liquid fund. So, an investor stands to gain benefit from the returns of the equity fund to which the funds are being transferred to & at the same time remain protected as a part of the investment remains in debt.

Averaging of Cost

STP helps in averaging out the cost as it assists in buying units when the rates are lower & vice versa.

Regular Investments: The investor commits to investing a fixed amount of money at regular intervals, such as monthly or quarterly.

Purchase of Units: With each investment interval, the fixed amount is used to purchase units of the chosen investment, whether it's stocks, mutual funds, or exchange-traded funds (ETFs).

Market Conditions: Since the fixed amount buys more units when prices are low and fewer units when prices are high, Dollar-Cost Averaging helps reduce the impact of market fluctuations on the average purchase price of the investment.

Long-Term Approach: Averaging is often employed as a long-term investment strategy, allowing investors to accumulate assets gradually over time while potentially benefiting from market downturns.

Discipline: This strategy encourages disciplined investing, as investors continue to invest regularly regardless of short-term market movements.