EVERYTHING ABOUT STP

1.      What is STP

STP is a version of SIP. It helps you to invest a fixed amount in a particular fund on a monthly basis. 

2.      STP Vs SIP

In an SIP, your money moves from your bank account to a mutual fund. In an STP, it moves from one fund to another. 

3.      How it works

Its simple. First step involves accumulating investments in a fund. When you want to exit this MF scheme, you sign up for an STP and specify a new fund and monthly amount. The STP will exit your previous investment and move your money to a new fund every month.  

4.      Liquid to Equity MF

The most common use of STP is to first invest your entire investment amount in a liquid fund in lump sum and then transfer it to an equity funds at different market prices, thus averaging your costs and lowering risks.  

5.      Equity to debt MF

Another common use of STP is when you want to lower the risks of your investment, say at the age of 55. You then systematically move the funds to debt scheme that can help you protect your money until your retirement. 

6.      Capital Gains

When you start an STP, you are essentially selling your investments in an old MF scheme and buying a new one. This means you could be eligible for capital gains tax either ofr the short term or long term. Consider this before making your decision.  

7.      Exit load

Before you start an STP, don’t forget to consider the exit load on your prior MF investment. This could eat into your returns.