Systematic Transfer Plan is a Strategy where an investor transfers a fixed amount of money from one category of fund to another,usually from a Debt fund to an Equity Fund.
Investing a Lump sum amount in stocks of equity mutual fund could be dicey for some investor considering the volatility of equity markets and returns in equity mutual fund is linked to the performance of stock markets. STP helps to keep a balance of risk and return. Further, it helps investor invest in equity at appropriate time and till then, investor enjoy debt returns.
From the above table we can identify that, With a lump sum investment of Rs 5 Lakhs in debt fund , even after transfer of 295000 (41 Months x 5000) , your value in debt fund is Rs 431964.74 which is approximate 8.88% return
In case if you withdraw money from liquid funds before 36 months from date of investments then short term capital gain (STCG) is levied else long term capital gain tax is levied (LTCG) and because of this reason it is been mentioned STCG & LTCG in the above example
Let us see the value of equity growth fund now for which we transferred 5000 every month from debt fund.
In Equity Fund your amount invested for Rs 205000 is now Rs 301896.92 which is approximate 23.87 returns
Your Investment value on 5 lakhs is as on debt fund value + equity fund value i.e 431964 + 301896 = 733,860 in 41 months
Investing a Lump sum amount in stocks of equity mutual fund could be dicey for some investor considering the volatility of equity markets and returns in equity mutual fund is linked to the performance of stock markets. STP helps to keep a balance of risk and return. Further, it helps investor invest in equity at appropriate time and till then, investor enjoy debt returns.
Benefits of Systematic Transfer Plan (STP)
Consistent Return : Money invested lumpsum in debt fund earned interest till the time it is transferred to equity fund. The returns in the debt fund are usually higher than returns from savings bank account and assure relative performance.
Averaging of Cost : STP has some integral features of systematic investment plan (SIP). One of the difference between STP and SIP is source of investment. In case of STP money is transferred usually from a debt fund and in case of SIP, it is the investor's bank account. Since it is similar to SIP, STP also helps in rupee averaging cost.
Re-balancing portfolio : An investor's portfolio should be balanced between equity and debt. STP helps in re-balancing the portfolio by reallocating investment from debt to equity or vice versa
How does STP Work ?
Imagine you won a lottery of Rs 5 Lakhs and you want to invest in equity market but at the back of the mind you are not willing to take risk to entirely bet your 5 lakh on equity.
So here you will invest Rs 5 Lakhs via STP. You will have to select a source scheme (debt scheme) and a target scheme (equity scheme) , a fixed transfer date and a fixed amount.
In below example date is 25th of every month & 5000 would be transferred from ICICI Prudential Liquid Growth (DEBT) and transferred to ICICI PRU Value Discovery Fund - Growth (Equity)
Every month Rs 5000 would be transferred from Debt Scheme to Equity Growth Scheme
In below example date is 25th of every month & 5000 would be transferred from ICICI Prudential Liquid Growth (DEBT) and transferred to ICICI PRU Value Discovery Fund - Growth (Equity)
Every month Rs 5000 would be transferred from Debt Scheme to Equity Growth Scheme
| STP - Transferor Scheme : ICICI Prudential Liquid Plan - Growth | |||||
|---|---|---|---|---|---|
| Period | STP Start Date | Total No. Units Accumulated | Total Amount Transferred | Scheme Market Value(Rs.) | |
| 01-Jan-2013 to 08-Jun-2016 | 01-Jan-13 | 1,900.87 | 205,000.00 | 431,964.74 | |
| NAV Date | NAV | Units | Cash Flow | Amount | STCG/LTGC |
| 01-Jan-13 | 169.91 | 2,942.77 | -500,000.00 | 500,000.00 | |
| 27-Jan-13 | 170.93 | 2,913.52 | 5,000.00 | 495,000.00 | STCG |
| 25-Feb-13 | 172.06 | 2,884.46 | 5,000.00 | 490,000.00 | STCG |
| 25-Mar-13 | 173.19 | 2,855.59 | 5,000.00 | 485,000.00 | STCG |
| 25-Apr-13 | 174.57 | 2,826.95 | 5,000.00 | 480,000.00 | STCG |
| 26-May-13 | 175.83 | 2,798.51 | 5,000.00 | 475,000.00 | STCG |
| 25-Jun-13 | 177 | 2,770.26 | 5,000.00 | 470,000.00 | STCG |
| 25-Jul-13 | 177.78 | 2,742.14 | 5,000.00 | 465,000.00 | STCG |
| 25-Aug-13 | 179.38 | 2,714.26 | 5,000.00 | 460,000.00 | STCG |
| 25-Sep-13 | 181.02 | 2,686.64 | 5,000.00 | 455,000.00 | STCG |
| 25-Oct-13 | 182.53 | 2,659.25 | 5,000.00 | 450,000.00 | STCG |
| 25-Nov-13 | 183.99 | 2,632.08 | 5,000.00 | 445,000.00 | STCG |
| 25-Dec-13 | 185.36 | 2,605.10 | 5,000.00 | 440,000.00 | STCG |
| 26-Jan-14 | 186.81 | 2,578.34 | 5,000.00 | 435,000.00 | STCG |
| 25-Feb-14 | 188.12 | 2,551.76 | 5,000.00 | 430,000.00 | STCG |
| 25-Mar-14 | 189.44 | 2,525.36 | 5,000.00 | 425,000.00 | STCG |
| 25-Apr-14 | 191.01 | 2,499.19 | 5,000.00 | 420,000.00 | STCG |
| 25-May-14 | 192.41 | 2,473.20 | 5,000.00 | 415,000.00 | STCG |
| 25-Jun-14 | 193.82 | 2,447.41 | 5,000.00 | 410,000.00 | STCG |
| 25-Jul-14 | 195.19 | 2,421.79 | 5,000.00 | 405,000.00 | STCG |
| 25-Aug-14 | 196.59 | 2,396.36 | 5,000.00 | 400,000.00 | STCG |
| 25-Sep-14 | 198.03 | 2,371.11 | 5,000.00 | 395,000.00 | STCG |
| 26-Oct-14 | 199.49 | 2,346.04 | 5,000.00 | 390,000.00 | STCG |
| 25-Nov-14 | 200.89 | 2,321.15 | 5,000.00 | 385,000.00 | STCG |
| 25-Dec-14 | 202.28 | 2,296.44 | 5,000.00 | 380,000.00 | STCG |
| 26-Jan-15 | 203.78 | 2,271.90 | 5,000.00 | 375,000.00 | STCG |
| 25-Feb-15 | 205.17 | 2,247.53 | 5,000.00 | 370,000.00 | STCG |
| 25-Mar-15 | 206.51 | 2,223.32 | 5,000.00 | 365,000.00 | STCG |
| 26-Apr-15 | 208.14 | 2,199.30 | 5,000.00 | 360,000.00 | STCG |
| 25-May-15 | 209.52 | 2,175.43 | 5,000.00 | 355,000.00 | STCG |
| 25-Jun-15 | 210.97 | 2,151.73 | 5,000.00 | 350,000.00 | STCG |
| 26-Jul-15 | 212.39 | 2,128.19 | 5,000.00 | 345,000.00 | STCG |
| 25-Aug-15 | 213.75 | 2,104.80 | 5,000.00 | 340,000.00 | STCG |
| 27-Sep-15 | 215.2 | 2,081.56 | 5,000.00 | 335,000.00 | STCG |
| 25-Oct-15 | 216.48 | 2,058.47 | 5,000.00 | 330,000.00 | STCG |
| 25-Nov-15 | 217.84 | 2,035.52 | 5,000.00 | 325,000.00 | STCG |
| 27-Dec-15 | 219.26 | 2,012.71 | 5,000.00 | 320,000.00 | STCG |
| 25-Jan-16 | 220.56 | 1,990.04 | 5,000.00 | 315,000.00 | LTCG |
| 25-Feb-16 | 221.97 | 1,967.52 | 5,000.00 | 310,000.00 | LTCG |
| 27-Mar-16 | 223.5 | 1,945.14 | 5,000.00 | 305,000.00 | LTCG |
| 25-Apr-16 | 225.12 | 1,922.93 | 5,000.00 | 300,000.00 | LTCG |
| 25-May-16 | 226.58 | 1,900.87 | 5,000.00 | 295,000.00 | LTCG |
| 08-Jun-16 | 227.25 | 1,900.87 | 431,964.74 | 295,000.00 |
In case if you withdraw money from liquid funds before 36 months from date of investments then short term capital gain (STCG) is levied else long term capital gain tax is levied (LTCG) and because of this reason it is been mentioned STCG & LTCG in the above example
Let us see the value of equity growth fund now for which we transferred 5000 every month from debt fund.
| STP - Transferee Scheme : ICICI Prudential Value Discovery Fund - Growth | ||||
|---|---|---|---|---|
| Period | STP Start Date | Total No. Units Accumulated | Total Amount Invested | Scheme Market Value(Rs.) |
| 01-Jan-2013 to 08-Jun-2016 | 01-Jan-13 | 2,593.17 | 205,000.00 | 301,896.92 |
| NAV Date | NAV | Units | Cash Flow | Amount |
| 25-Jan-13 | 58.12 | 86.03 | -5,000.00 | 5,000.00 |
| 25-Feb-13 | 55.31 | 176.43 | -5,000.00 | 10,000.00 |
| 25-Mar-13 | 52.85 | 271.04 | -5,000.00 | 15,000.00 |
| 25-Apr-13 | 54.94 | 362.04 | -5,000.00 | 20,000.00 |
| 24-May-13 | 54.17 | 454.35 | -5,000.00 | 25,000.00 |
| 25-Jun-13 | 49.97 | 554.41 | -5,000.00 | 30,000.00 |
| 25-Jul-13 | 50.76 | 652.91 | -5,000.00 | 35,000.00 |
| 23-Aug-13 | 49.28 | 754.37 | -5,000.00 | 40,000.00 |
| 25-Sep-13 | 52.99 | 848.73 | -5,000.00 | 45,000.00 |
| 25-Oct-13 | 55.85 | 938.25 | -5,000.00 | 50,000.00 |
| 25-Nov-13 | 58.23 | 1,024.12 | -5,000.00 | 55,000.00 |
| 24-Dec-13 | 61.59 | 1,105.30 | -5,000.00 | 60,000.00 |
| 24-Jan-14 | 60.26 | 1,188.28 | -5,000.00 | 65,000.00 |
| 25-Feb-14 | 61.93 | 1,269.01 | -5,000.00 | 70,000.00 |
| 25-Mar-14 | 66.22 | 1,344.52 | -5,000.00 | 75,000.00 |
| 25-Apr-14 | 71.66 | 1,414.29 | -5,000.00 | 80,000.00 |
| 23-May-14 | 84.58 | 1,473.41 | -5,000.00 | 85,000.00 |
| 25-Jun-14 | 89.11 | 1,529.52 | -5,000.00 | 90,000.00 |
| 25-Jul-14 | 91.93 | 1,583.91 | -5,000.00 | 95,000.00 |
| 25-Aug-14 | 96.65 | 1,635.64 | -5,000.00 | 100,000.00 |
| 25-Sep-14 | 97.86 | 1,686.73 | -5,000.00 | 105,000.00 |
| 22-Oct-14 | 99.93 | 1,736.77 | -5,000.00 | 110,000.00 |
| 25-Nov-14 | 105.39 | 1,784.21 | -5,000.00 | 115,000.00 |
| 24-Dec-14 | 105.06 | 1,831.80 | -5,000.00 | 120,000.00 |
| 23-Jan-15 | 113.62 | 1,875.81 | -5,000.00 | 125,000.00 |
| 25-Feb-15 | 114.72 | 1,919.39 | -5,000.00 | 130,000.00 |
| 25-Mar-15 | 114.3 | 1,963.14 | -5,000.00 | 135,000.00 |
| 24-Apr-15 | 111.28 | 2,008.07 | -5,000.00 | 140,000.00 |
| 25-May-15 | 114.89 | 2,051.59 | -5,000.00 | 145,000.00 |
| 25-Jun-15 | 114.75 | 2,095.16 | -5,000.00 | 150,000.00 |
| 24-Jul-15 | 117.07 | 2,137.87 | -5,000.00 | 155,000.00 |
| 25-Aug-15 | 111.71 | 2,182.63 | -5,000.00 | 160,000.00 |
| 24-Sep-15 | 111.36 | 2,227.53 | -5,000.00 | 165,000.00 |
| 23-Oct-15 | 115.17 | 2,270.94 | -5,000.00 | 170,000.00 |
| 24-Nov-15 | 114.08 | 2,314.77 | -5,000.00 | 175,000.00 |
| 24-Dec-15 | 113.03 | 2,359.01 | -5,000.00 | 180,000.00 |
| 25-Jan-16 | 105.52 | 2,406.39 | -5,000.00 | 185,000.00 |
| 25-Feb-16 | 97.5 | 2,457.68 | -5,000.00 | 190,000.00 |
| 23-Mar-16 | 108.33 | 2,503.83 | -5,000.00 | 195,000.00 |
| 25-Apr-16 | 112.86 | 2,548.13 | -5,000.00 | 200,000.00 |
| 25-May-16 | 111.02 | 2,593.17 | -5,000.00 | 205,000.00 |
| 08-Jun-16 | 116.42 | 2,593.17 | 301,896.92 | 205,000.00 |
In Equity Fund your amount invested for Rs 205000 is now Rs 301896.92 which is approximate 23.87 returns
Your Investment value on 5 lakhs is as on debt fund value + equity fund value i.e 431964 + 301896 = 733,860 in 41 months
Can you see the benefits of systematic transfer plan which offers consistent return , re balancing your portfolio and rupee averaging cost.
Be a smart and informed investor – check how much insurance do you need and why you should in invest in Mutual Funds versus ULIP after analyzing the above two you can invest money via SIP in best 3 equity mutual funds in India for Retirement
PPS: If you think this page and blog will be useful to any of your friends please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left
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In case of any further explanation you can reach me on vipuls1979@gmail.com or tweet me @vipuls1979
Disclaimer :-
The Article is only for information purposes and Vipul Shah (https://investkiyakya.blogspot.com) is not providing any professional/investment advice through it. The article does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. https://investkiyakya.blogspot.com disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this article, including without limitation the implied warranties of merchantability and fitness for a particular purpose. https://investkiyakya.blogspot.com and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this guide. Use of this article is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. https://investkiyakya.blogspot.com does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this article are and shall remain with https://investkiyakya.blogspot.com. This article is for your personal use and you shall not resell, copy, or redistribute this article , or use it for any commercial purpose. All names and situations depicted in the article are purely fictional and serve the purpose of illustration only. Any resemblance between the illustrations and any persons living or dead is purely coincidental.
PPS: If you think this page and blog will be useful to any of your friends please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left
Mutual Funds & Insurance Related Articles :-
Benefits of Systematic Investment Plan
What is Systematic Transfer Plan and How it works ?
Advantages of Equity Linked Savings Schemes
Top 3 Mutual Funds to Invest in 2016 for Long Term
How Much Insurance Do I Need ?
How to Select Mutual Fund for Portfolio ?
How to Budget your money with 40/30/30 Rule ?
Mutual Fund Versus ULIP
Why Term Insurance Policy is required till 60 years ?
Equities related article :
Risk Management in Broking House for You as Investor
Understand Your Daily Margin Statement
What is Power of Attorney in Online Trading?
Futures & Options related article :
Futures Trading TerminologiesWhat is Futures Trading?
What is Derivatives ?
What are Forward Contracts ?
Advantages & Disadvantages of Futures Trading ?
Guide to Options Trading
Long Call - Bullish Trading Strategies
Long Put
Short Call - Bearish Strategies
Sell Put - Bullish Strategies
Buy Straddle Option
Short Straddle Option
Synthetic Long Call
Synthetic Long Put
Synthetic Long Futures
Synthetic Long Futures
Bull Put Spread
In case of any further explanation you can reach me on vipuls1979@gmail.com or tweet me @vipuls1979
Disclaimer :-
The Article is only for information purposes and Vipul Shah (https://investkiyakya.blogspot.com) is not providing any professional/investment advice through it. The article does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. https://investkiyakya.blogspot.com disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this article, including without limitation the implied warranties of merchantability and fitness for a particular purpose. https://investkiyakya.blogspot.com and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this guide. Use of this article is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. https://investkiyakya.blogspot.com does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this article are and shall remain with https://investkiyakya.blogspot.com. This article is for your personal use and you shall not resell, copy, or redistribute this article , or use it for any commercial purpose. All names and situations depicted in the article are purely fictional and serve the purpose of illustration only. Any resemblance between the illustrations and any persons living or dead is purely coincidental.
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