Systematic Transfer Plan: Use STP to boost your MF returns

STP can be a good way to mitigate market risks, cap losses and increase your portfolio returns in the long-term.

If you have earned a lumpsum amount, say a hefty bonus after two years of Covid-induced pay-cut, and want to shield the amount from market swings, opt for a systematic transfer plan (STP) of mutual funds. 

In this, you can invest the lump sum amount in a debt fund, preferably ultra-short-term bond fund, and then regularly transfer —monthly or quarterly —a specific amount into an equity fund so that the entire fund is not exposed to the volatility in the market.  

For one, the amount of money parked in the source fund will earn higher returns than a savings bank account.  

Second, the equity portion of the fund can earn higher returns over the long-term and the investor will get more units when markets fall and less when markets are rising which will average out the rupee cost and balance the investment among liquid and equity portfolios. 

Experts say STP can be a good way to mitigate market risks, help cap losses and increase investors’ portfolio returns in the long term. 

STP ADVANTAGES

Set up an STP mandate to book profits regularly from an equity fund and transfer the amount to a debt fund to mitigate the market volatility 

Mutual funds offer capital appreciation, variable & fixed STP for transfer of money from source fund to destination fund