Systematic Transfer Plan: What is STP in Mutual Funds?
Within investment instruments, there are different investment strategies and tools that investors can use to modify investments to most accurately suit their financial needs. The STP is one such investment approach within the purview of mutual fund investment. The STP or Systematic Investment Plan is a mechanism whereby an investor can transfer their capital from one mutual fund to another, provided both the funds exist within the same asset management company (AMC) or fund house.
The transfer takes place instantly and entails a hassle-free process. It is worth exploring how an STP works, and how it helps investors increase their chances of profits while mitigating risks.
What is a Systematic Transfer Plan (STP)?
As mentioned earlier, in the realm of mutual fund investing, a Systematic Transfer Plan permits investors to make a move and shift resources from one mutual fund to another within the same fund house. Investors may choose this method of investing in mutual funds as it allows them to explore different funds, giving them opportunities to make profits and spread their risk.
With an STP in a mutual fund, shifts or transfers occur on an automatic basis (predetermined before you opt for an STP), periodically. Typically, investors fix a number of units to be transferred on a periodic basis from a “source scheme” to a “target scheme”. The source scheme may be a debt fund and the target scheme may be an equity fund.
This gives investors an edge over the market, as they can shift their capital to other funds as and when they see the opportunity for higher returns. Hence, such a tool protects investors against fluctuations in the market, minimising potential losses.
How does a Systematic Transfer Plan work?
An STP permits investors to transfer or switch their resources (a certain amount of mutual fund units) on a periodic basis, from one mutual fund to another fund within the same fund house. Investors have the option of switching from any kind of scheme (like an equity scheme) to any kind of other scheme (like a debt scheme or a hybrid plan), based on certain conditions of the market.
Types of Systematic Transfer Plans
If you wish to use a Systematic Transfer Plan, there are many types to opt for:
Fixed STP: This kind of STP gives investors the opportunity to transfer a fixed amount of funds to be transferred from one mutual fund to another.
Flexible STP: Here, investors can enjoy the flexibility to make decisions on the total funds that are transferred as per investors’ needs. Based on educated market forecasts and conditions of the market related to the performance of a scheme, investors may want to transfer smaller or larger amounts of their current mutual fund. The minimum amount that may be transferred is reflective of the fixed nature of the amount, while a flexible amount to be transferred is based on volatility in the market or the performance of the scheme, hence, the flexibility of this kind of STP.
Capital Systematic Transfer Plan: With a capital systematic transfer plan, investors can transfer the total returns arising from a mutual fund’s market appreciation to another mutual fund scheme that appears prospective and potentially shows an estimation of growth.
Key Features of a Systematic Transfer Plan
An STP in a mutual fund has features to be aware of and these are detailed below:
In mutual funds, via the systematic transfer plan mode, investors may choose to invest any amount of their capital. The Securities & Exchange Board of India (SEBI) does not mandate any minimum investment amount. Nonetheless, you will discover that many asset management companies require ₹12,000 as a minimum amount of investment to avail of the STP.
In case investors wish to avail of an STP, a minimum number of 6 transfers must be undertaken.
For an STP, there is no entry load on mutual funds. However, an exit load may be levied on every transfer undertaken, based on the scheme’s exit load mechanism.
Exit loads are different for different schemes. A maximum of 2% is applicable when funds are transferred or redeemed. Furthermore, there are specific schemes that do not levy any exit loads for STPs.
The taxation of any STP is based on the same tax laws applicable to mutual fund investments in general.
Benefits of Investing in a Systematic Transfer Plan
Now you know the answer to the question, “What is an STP?”, you may be eager to find out the advantages you get by investing with such a tool. Here are some key pros of using an STP:
High Returns: STPs give you the perk of earning relatively higher returns by switching your investments to more lucrative funds while market swings are on. In this method, you gain an advantage over the market and maximise your returns via securities purchased and sold.
Stability in Investment: When the stock market witnesses volatility, investors have the chance to protect themselves and transfer funds to comparatively secure investments, such as debt funds as well as money market instruments.
Disciplined Investment Approach: If you opt for an STP, you get a disciplined way to invest as the transfer of funds is planned based on prior decisions.
Investment Balance: The systematic transfer plan mode of investing in mutual funds offers you a potentially ideal way to balance your investments in mutual funds. Considering your risk tolerance, time horizon, and financial objectives, a potentially optimal investment mix of funds lets you invest in alignment with your shifting requirements. You have the chance to maximise returns while you mitigate risk in an effective manner.
Rupee-Cost Averaging: This is an attractive feature of mutual funds where investors keep investing small sums of capital at frequent periods, irrespective of the conditions of the market. Such an approach results in averaging out the buying cost over time and facilitates the mitigation of market volatility.
Taxation: Mutual fund investment returns are subject to taxation depending on the sum you invest, your holding period, your level of income, and the tax brackets you fall within. With a systematic transfer plan, you may research how you can lessen your tax burden when you make fund transfers to different schemes.
Who Should Consider Investing in a Systematic Transfer Plan?
Still wondering whether you are a good candidate for a systematic transfer plan. Well, here are some criteria to consider and decide if you should be the one opting for an STP:
Low-Risk Investors: Appealing to investors with a low-risk profile, an STP offers steady investment. You can gradually invest in equity, transferring funds from debt/money market/liquid schemes to equity schemes in regular instalments, based on market volatility. Related to this, investors trying to avoid market fluctuations may also find an STP attractive.
Investors with Limited Capital: Investors with limited capital, but who seek potentially high returns through equity markets, find this investment approach appealing.
Long-term Investors: For those investors with a long-duration investment strategy, STPs may be considered. If investors follow this path diligently, they can make the most of long-run capital appreciation while still getting the opportunity to switch investment avenues when the need arises.
Specific Goal-Oriented Investors: Investors may opt for an STP in a mutual fund investment if they have particular financial goals to be fulfilled and milestones to be met. With investments focused on your long-term goals, you can systematically work towards achieving them in an affordable and risk-averse fashion.
Disciplined Investors Wanting Diversification: The STP is a disciplined way to invest and reap potential benefits. Moreover, investors who desire portfolio diversification may opt for this as investments are spread across debt and equity instruments.
Conclusion
Systematic Transfer Plans are solutions for investors who wish to invest their money according to their risk tolerance. With an STP function, investors are allowed to move their finances from one mutual fund scheme to another, within the same fund house, without any hassles. Applicable to mutual funds, they come with several benefits like stability, great returns, discipline in investment, and tax relaxations. Selecting the appropriate STP translates to maximising returns while mitigating risk.
SIPs let you invest small amounts regularly, making it easier to stay consistent with your goals. With time, your money grows faster through compounding, helping you get the most out of your investments. Try our SIP Calculator to see how your money can grow and make smarter plans for your future
More Related Articles
Can Mutual Fund Schemes Invest in Upcoming IPOs?
18 July 2025 | 7 mins read
Can Mutual Fund Schemes Invest in Upcoming IPOs? - H1 Initial Public Offerings (IPOs) have become a buzzword among investors looking for high-growth opportunities. Whether it’s a unicorn startup going public or a reputed company entering the equity market, IPOs attract substantial interest. But what about mutual funds — can they participate in IPOs? And if yes, how does it impact you as an investor in a mutual fund? This article explores the role of mutual funds that invest in IPOs, the process behind such investments, and how you can benefit from this strategy. You’ll also gain insights into how fund managers evaluate IPO opportunities and which mutual funds are more likely to invest in them. Role of Mutual Funds in Equity Markets - H2 Mutual funds play a vital role in India’s equity markets. Managed by professional fund managers, these pooled investment vehicles collect money from multiple investors and allocate it across a portfolio of stocks, bonds, or other assets based on the fund's mandate. In the context of equity investing, mutual funds: Provide diversification to small investors Help in price discovery and market depth Act as long-term institutional investors Reduce risk through strategic asset allocation Given their market presence and influence, mutual funds also participate in IPOs, often subscribing to large portions of new issuances. But this activity is more nuanced than simply bidding for shares. Are Mutual Funds Allowed to Invest in IPOs? - H2 Yes, mutual funds in India are allowed to invest in IPOs — both in the primary market (where shares are first issued) and in the secondary market (where stocks are traded after listing). This means mutual funds can apply for shares during an IPO’s book-building process just like retail investors, high-net-worth individuals (HNIs), and institutional investors. SEBI regulations allow fund managers to allocate a portion of the fund’s assets to IPOs, provided the investment aligns with the scheme's objectives and risk profile. For instance: A large-cap fund may only invest in IPOs of companies expected to be included in large-cap indices A multi-cap or flexi-cap fund has more flexibility to take exposure across market capitalisations, including IPOs An ELSS fund (Equity-Linked Savings Scheme) can also participate in IPOs if it aligns with its tax-saving and equity investment objective So, the short answer is: Yes, mutual funds can and do invest in IPOs — but not all funds, and not always. Why and When Do Mutual Funds Invest in IPOs? - H2 Investing in IPOs offers mutual fund managers several strategic advantages, including: 1. Access to Early Growth Potential - H3 Many IPOs are of young, fast-growing companies. By investing early, mutual funds aim to capture the growth upside before the stock gains mainstream popularity. 2. Price Arbitrage Opportunities - H3 If a mutual fund believes that the IPO is underpriced relative to its intrinsic value, it may invest with the intent of benefiting from listing gains or long-term appreciation. 3. Portfolio Enhancement - H3 Some IPOs bring fresh sector exposure or innovation to the market. Fund managers may invest to diversify or rebalance the portfolio with new-age businesses, like fintech or EV startups. 4. Long-Term Bets - H3 Fund managers often look at IPOs with a long-term lens. The goal isn’t always listing gains but building a position in a company expected to perform well over years. 5. Demand and Liquidity Trends - H3 In bullish markets, IPOs tend to be oversubscribed and see strong listing premiums. Mutual funds may participate to ride the market momentum, especially when investor confidence is high. Factors Fund Managers Consider Before Investing in IPOs - H2 While IPOs are exciting, they are also risky and speculative, especially for companies with no prior listing record. Fund managers conduct rigorous due diligence before deciding to allocate your money to an IPO. Here are the key factors considered: 1. Company Fundamentals - H3 This includes examining the company’s: Revenue and earnings trends Debt levels and capital structure Profit margins and business scalability Competitive advantage and market share 2. Valuation Metrics - H3 Fund managers analyse: Price-to-Earnings (P/E) ratio Price-to-Book (P/B) ratio Enterprise Value to EBITDA (EV/EBITDA) These are compared with listed peers in the same sector. 3. Promoter and Management Track Record - H3 A critical evaluation is made on the credibility, governance standards, and historical performance of the promoters and top management. 4. Utilisation of IPO Proceeds - H3 Fund managers study how the company plans to use the funds—whether for debt repayment, expansion, or general corporate purposes. 5. Macroeconomic and Sector Trends - H3 Sectoral outlooks, regulatory policies, and broader market sentiments also influence IPO investment decisions. 6. Anchor Book Participation - H3 Strong interest from anchor investors (like global funds or sovereign wealth funds) signals confidence in the issue, making it more attractive for mutual fund participation. Best IPO Mutual Funds: What to Look For - H2 If you're keen on gaining exposure to IPOs through mutual funds, it's important to choose the right type of fund. While there’s no official category called “IPO mutual funds,” some schemes actively participate in upcoming IPOs. Here’s what you should look for when selecting such a fund: 1. Fund Category and Investment Mandate - H3 Start by checking the category of the fund. Flexi-cap, multi-cap, and mid-cap funds generally have more leeway to invest in IPOs. These funds are not restricted to a single market capitalisation and often aim to capture high-growth opportunities, making them ideal for IPO exposure. 2. Track Record of Participating in IPOs - H3 Review the fund’s portfolio history. Some mutual funds consistently allocate a portion of their assets to new listings. You can find this information in the fund’s monthly factsheet or portfolio disclosure. Look for funds that have a pattern of investing in IPOs over time—not just as a one-off move. 3. Fund Manager's Experience and Strategy - H3 A skilled fund manager makes a significant difference. The manager's ability to evaluate IPO valuations, industry potential, and company fundamentals is crucial. Look for funds managed by professionals with a proven track record in equity investing and a sound IPO selection approach. 4. Diversification and Risk Management - H3 An ideal fund won’t rely heavily on IPOs alone. Instead, it will use IPO investments as part of a broader equity strategy. Ensure that the fund holds a well-diversified portfolio alongside its IPO allocations to reduce volatility and balance risk. 5. Consistent Performance Over Market Cycles - H3 While past performance isn’t a guarantee of future returns, funds that have consistently performed well across different market cycles often reflect strong management and strategy. Look at long-term performance metrics like 3-year or 5-year returns instead of just recent gains. 6. Transparency and Reporting - H3 Good IPO-investing funds are transparent about their holdings. Choose funds that provide detailed disclosures about their portfolio, including new IPO allocations, so you can track how your money is being deployed. Also, read the scheme information document (SID) to understand the fund’s mandate and whether it allows active IPO participation. Should You Invest in a Mutual Fund That Invests in IPOs? - H2 Pros: Access to IPOs without applying individually Professional due diligence and analysis Built-in diversification Potential to capture high-growth opportunities Cons: IPO investments may not always succeed May increase portfolio volatility Returns can be affected by market timing and sentiment If you're a long-term investor, funds that occasionally invest in IPOs can be a good addition to your portfolio — but don’t chase IPO exposure alone. Always assess the fund holistically. Conclusion - H2 Yes, mutual fund schemes in India can and do invest in IPOs, but they do so strategically — not emotionally or impulsively. Fund managers assess multiple factors before deciding to put your money in newly-listed companies. As a retail investor, you benefit from their expertise and risk management process without having to analyse IPOs on your own. If you're looking for exposure to IPOs but want to avoid direct stock-picking, investing in a mutual fund that invest in IPO offers a smart, diversified route. However, always match the fund’s strategy with your risk tolerance, time horizon, and financial goals.
Mistakes People Make While Investing and How to Fix Them
10 July 2025 | 7 mins read
Investing can be one of the most effective ways to build wealth over time. Whether you’re investing in mutual funds or stocks, the goal is simple: earning returns that beat inflation and help you achieve financial freedom. However, investing isn’t just about selecting the right stocks or funds — it’s also about avoiding costly mistakes that can slow your progress down.
How Can ELSS Funds Be Redeemed? Rules for ELSS Withdrawal
26 June 2025 | 9 mins read
Equity-linked Savings Schemes (ELSS) are a type of mutual fund in India that provide tax relief under Section 80C of the Income Tax Act. ELSS have a three-year lock-in period, during which the amount invested cannot be withdrawn. It is important for investors to know the ELSS redemption process, rules, and tax implications while making their financial plans. This article explores the intricacies of ELSS mutual fund redemption, shedding light on the procedures and considerations.
FAQ
What does STP mean?
STP stands for Systematic Transfer Plan, an investment tool that permits investors to automatically transfer capital between different schemes that occur in the same mutual fund house.
Is the Systematic Transfer Plan a good option?
Whether the Systematic Transfer Plan is a good option is entirely dependent on an investor’s individual investment goals and risk profile. The plan may be considered by those investors on the lookout for a disciplined way to invest with an averaging of costs included.
What are the benefits of STP in mutual funds?
The benefits of STP in mutual funds include portfolio rebalancing, rupee-cost averaging, and a disciplined approach to investing in general. Portfolio rebalancing means that you can invest by changing your asset allocation depending on your needs and risk potential from time to time. With rupee-cost averaging, you regularly invest at many NAVs so you possibly reduce the effect of volatility. The disciplined investment approach is reflected in the automated investment feature of this investment tool.