What is STP (Systematic Transfer Plan)? — How It Works
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STP moves your money gradually from a debt fund to an equity fund on a fixed schedule. Learn why it's safer than a lump sum entry into equities.
STP (Systematic Transfer Plan) automatically moves a fixed amount from one mutual fund to another, on a set schedule, usually monthly. The most common use is transferring a lump sum from a debt/liquid fund into an equity fund gradually, instead of investing it all at once.
Why Use STP Instead of a Lump Sum?
If you have a large lump sum (say from a bonus, maturity, or property sale) and invest it all in equity on a single day, you're fully exposed to whatever the market does right after — good or bad. STP spreads that entry across several months, reducing the risk of investing everything right before a market fall.
How a Typical STP Works
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| Step | Action |
|---|---|
| 1 | Invest full lump sum in a liquid or short-duration debt fund (low volatility, earns ~6-7%) |
| 2 | Set up STP to transfer a fixed amount (e.g., 1/12th of the total) into an equity fund every month |
| 3 | Over 6-12 months, your money moves entirely into equity at averaged entry prices |
Tax Note
Each STP installment is treated as a redemption from the source fund and a fresh purchase in the target fund — so capital gains tax applies on the debt fund portion at each transfer, based on your holding period and applicable rates.
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