Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest.
You can’t win until you do this.
STP (Systematic Transfer Plan)
WHAT IS SYSTEMATIC TRANSFER PLAN (STP)?
Systematic Transfer Plan (STP) is a strategic tool used for transferring a certain amount of money from debt to, let’s say, equity mutual fund.
In situations where my client has a clustered lump sum amount to invest, but the market is at a high, I recommend this strategy.
- Safe return - While the hefty sum of our client is parked in the debt fund, it saves from the ups and downs of the Hence, by choosing to invest in a debt fund, you systematically transfer a fixed amount over six months to one year from this debt fund to equity fund.
- Averaging of rupee cost method - STP helps in the averaging cost of buying equity over, let’s say, six It abolishes the fear of purchasing during highs or lows.
- The chance to Rebalance the client’s portfolio - To maintain the same ratio as equity-debt, I use this tool to keep a balance or vice versa When I find that investment in debt is increasing, I transfer money to equity through a systematic transfer plan. On the other hand, if investment in equity goes up, money can be switched from equity to debt fund.
- Taxation aspect of Systematic Transfer Plans - When you transfer money from a debt fund, it is considered as redemption, which is taxable, depending on the holding
- How long to continue STP - By and large, a minimum of 6 such transfers are required to invest in STP.
- You have to invest a minimum amount for a Systematic Transfer Plan - It also varies from one fund house to the Also, the fund houses may define the minimum amount of STPs to be carried.
- The transfer can be weekly, fortnightly, monthly and quarterly.
- I check for the exit load period of the debt fund while investing through the
It would help to understand these benefits and how they would help in your journey to wealth creation.
May that success come to you easily.
Taressh Bhatia is a CFPCM CERTIFIED FINANCIAL PLANNER CM and is the founder/partner of Advantage Financial Planner LLP – A firm Registered with SEBI (Securities and Exchange Board of India) as RIA (Registered Investment Advisor).
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