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Systematic transfer Plan


Just like they say, ‘Every drop in the ocean counts’, it is true that every rupee invested to build your wealth counts.

A Systematic Transfer Plan (STP) is one way to use this philosophy to build your wealth. An STP entails moving a pre-determined amount of money at periodic intervals from one mutual fund scheme to another. This facility is generally preferred when funds are transferred from a debt scheme (relatively low risk) into an equity scheme (high risk). By investing a certain amount first in a debt fund, you may also earn income from this investment till you shift all or most of your money into equity. Thus, even your otherwise idle money can earn you income.

Let us break this down further with an example

Let us say you have invested an amount of Rs.50000 in a debt mutual fund scheme (Scheme A) on January 01, 2017 at the Net Asset Value (NAV) of Rs.14.10. You would have received 3,546.099 units (Rs.50000 divided by Rs.14.10). You then decide to transfer Rs.5000 on the 1st of every month to an equity mutual fund scheme (Scheme B). On specified dates, Rs.5000 will automatically be transferred from Scheme A to Scheme B at the Net Asset Value (NAV) at the time of the transfer.

In this case, the account statement will look as follows:

Transfer of funds from Scheme A to Scheme B
Scheme A [Debt Scheme]
Jan Amount Invested 50,000 NAV 14.1 Number of units received --> 3546
Date of Withdrawal Amount withdrawn NAV Number of units redeemed Balance units
Apr 01, 2017 5000 14 357 3189
May 01, 2017 5000 14.3 350 2839
Jun 01, 2017 5000 14.5 345 2494
Jul 01, 2017 5000 14.7 340 2154
Aug 01, 2017 5000 15 333 1821
Sep 01, 2017 5000 14.8 338 1483
Oct 01, 2017 5000 15.2 329 1154
Nov 01, 2017 5000 15.3 327 827
Dec 01, 2017 5000 15.7 318 509

For illustrative purposes only, the actual NAV may vary

No. of units have been rounded off for ease of understanding

Scheme B [Equity Scheme]
Date of STP Amount Invested NAV Number of units received Balance units
Apr 01, 2017 5000 14 357 357
May 01, 2017 5000 14.3 350 707
Jun 01, 2017 5000 14.6 342 1049
Jul 01, 2017 5000 14.5 345 1394
Aug 01, 2017 5000 14.9 336 1730
Sep 01, 2017 5000 15.3 327 2056
Oct 01, 2017 5000 15.7 318 2375
Nov 01, 2017 5000 16.1 311 2685
Dec 01, 2017 5000 16.7 299 2985

From the above example we thus see:

If you let your money stay in Scheme A (Debt Fund), it can grow to Rs.55672.2 (3546 units multiplied by Closing NAV Rs.15.7)

However, if you opt for an STP (To an Equity Fund – Scheme B), your investment can grow to Rs.57840.8*

*Combined value from Scheme A and Scheme B:

Despite transfer of Rs.45000 out of a total Rs.50000, Income from Scheme A – Rs.7991.3 (509 units multiplied by Closing NAV Rs.15.7)

Income from Scheme B – Rs.49849.5 (2985 units multiplied by Closing NAV Rs.16.7)

In essence, your wealth can grow in addition by Rs.2168.6/-

Reasons STP can benefit you in ways more than one:

  • a. It helps you diversify your portfolio by letting you transfer a part of your investment to a different scheme
  • b. You can earn more in the same period from investments in two Mutual Fund schemes
  • c. It removes the need for repeated redemptions and investment transactions

To undertake an STP, all you need to do is select the scheme you wish to transfer money from and the scheme you wish to make the transfer to, the frequency at which you want to make the transfer and the amount you want to transfer each time. You can then relax considering the transfer process will automate till the date specified by you or till the folio balance exists, whichever is earlier.