The systematic investment plan is a commonly used tool to invest in different mutual fund schemes. But the current cash crunch has made it difficult to use SIP as a good tool to invest. Here is the new Systematic Transfer Plan that gets great attention from the investors. Systematic Transfer Plan is a smart tool that helps the mutual fund investors to earn a maximum return at a given level of risk. It maintains the balance between debt and equity investment mutual fund schemes.
Systematic Transfer Plan allows the investor to transfer money from one mutual fund plan to another within the same mutual fund company. Whereas a systematic investment plan allows only to invest in mutual funds in installments when the money is transferred from the bank account. An investor having a lump sum amount cannot wait for a long to invest through SIP and also an investment in equity very risky. So, now the mutual fund companies are giving an option to systematically transfer a fixed sum from an investment in one scheme to another through an STP. The fund in which the lump sum amount is invested is also called a source mutual fund scheme, and the fund to which a fixed amount is transferred is called the target scheme.
STP allows the investors to switch from equity scheme to Debt scheme. If the equity scheme Is not performing well then an investor can be switch to a debt scheme to reduce the risk and vice versa. In an STP an investor has to make at least 6 capital transfers. It may create an exit load charges up to 2%, whereas the entry load is free from charges. The capital gain emerges from this is taxable depending on the nature of the fund.
COVID-19 situation created a cash crunch and many of the investors found STP as a useful tool to reduce the risk and earn good returns. An average investor might not be able to time his investment when the equity market is in a volatile trend.COVID-19 made the life of common people miserable because of the pay cut and job losses. This made it difficult for investors to continuing with their SIPs. So, they can choose the STP option and get the benefit of it.