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Systematic Transfer Plans – Definition, Benefits and Should You Opt for


  • Do you know you can transfer money from one mutual fund scheme to another using the Systematic Transfer Plan?
  • But is it worth using? Read this post and know the same

Systematic Investment Plan (SIP) is a well-known term when it comes to mutual funds. In fact, many people use terms like SIP and mutual funds interchangeably. SIPs have become a popular medium to invest in mutual funds owing to its benefits, convenience, increased awareness and positive outcomes.

Like SIP, there is another tool or medium in mutual funds called the Systematic Transfer Plan (STP). It is the less known cousin of SIP but a very powerful tool. Let us understand in detail.

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What is an STP?

STP is a tool or medium through which you can transfer your investment from one mutual fund scheme to the other in a systematic way. Suppose there are two schemes A & B, you invested INR 1,20,000 in scheme A. Now you want to transfer INR 10,000 every month from scheme A to scheme B for the next one year.

You can do it in two ways. First, do the transfer manually every month by switching. Second, start an STP of INR 10,000 from scheme A at a pre-decided date. Let us say, you choose the 10th of every month as that date. So, on every 10th INR 10,000 will get transferred from Scheme A to Scheme B. This will go on for the next one year.

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When starting an STP, you can choose and transfer at different frequencies-daily, weekly, monthly, quarterly, half-yearly. The availability or choice of these tenures will differ from one mutual fund scheme to the other. You need to check the same before starting an STP.

But Why Would You Want to Transfer from One Scheme to Another?

Once you read the benefits and why you should opt for an STP, it will be clear. Let us deep dive.

Benefits of an STP

Averaging Entry Levels

This is the biggest benefit of doing an STP and the primary reason why people start an STP. Say, you want to invest in an equity mutual fund but are not sure of the current market levels.

You feel the markets might fall in the coming months and if you invest today you would be buying at a higher price. But no one can time the market to perfection. So, what do you do?

You can invest this amount in a debt fund, preferably a liquid or overnight fund since they are the safest and then start an STP in the equity mutual fund of your choice. This way you will earn about 5-6% from your debt fund investment and money will start getting transferred to the equity fund every month. You can decide the tenure of STP basis your view on markets, it could be 3 months, 6 months, 1 year or maybe more.

So, if the market falls, you will be buying units at lower NAV every month, thus averaging your buying price over the tenure of the STP.

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You can transfer or switch manually also but STP gives you the convenience where funds get automatically transferred from one scheme to the other without giving fresh requests every month. This makes doing an STP very convenient.


Liquid and ultra-short term funds give higher returns than keeping money in a savings bank account. By doing an STP, you get the benefit of higher returns on your overall investment since the principal amount invested in debt funds will deliver a higher return.

Works Like an SIP

Essentially, an STP works like a SIP with all the benefits of a SIP. When you start a SIP, you invest some amount every month at a fixed date. Similarly, if you have a lump sum amount and do not want to start a SIP, you can start an STP thereby reaping benefits of averaging, diversification and convenience.


You can start an STP in multiple funds from the source fund where you made the initial investment. Taking the earlier example, you invested INR 1,20,000 in a liquid fund and want to start an STP of INR 10,000. Rather than transferring the entire INR 10,000 in one scheme, you can also choose four schemes.

Say, you want to invest in a multi-cap, large-cap, mid-cap and a small-cap fund. You can divide the amount equally or in a ratio you feel right and start an STP into all four schemes. Let us assume you want to split INR 2500 each into these four schemes. Thus, you can give a request to the AMC to do the same. This helps you in diversifying across funds.

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Should You Start an STP?

STP is a good tool to invest, especially in equity mutual funds. It is relatively lesser known among investors. In the current scenario where markets are volatile with no clear direction in sight, it can work well.

As always, there are two schools of thought currently-markets might not fall much from these levels and markets will fall significantly. Investing a large lump sum money in equity mutual funds at this juncture is not suggested unless you have a time horizon of 10+ years by when most events would have played out and you will get decent returns.

However, if you want to invest for the next 3-5 years in equity mutual funds, STP should be the preferred route. We recommend starting a monthly STP with a tenure of next one year in mind. You can invest the amount in a liquid fund and then start an STP.

To know about the best liquid funds, you can read another post of ours-

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