All you need to know about the STP Calculator

What is a Systematic Transfer Plan (STP)?

Systematic Transfer Plan, or STP is a facility offered by certain mutual funds wherein a predetermined amount can be transferred from one mutual fund scheme to another scheme at predetermined intervals using the STP facility. This facility is offered by the majority of the mutual funds in the market.

STP can be seen as a variation of Systematic Investment Plan (SIP), that gives investors the chance to move a preset amount across plans with the same mutual fund house on a regular basis. By easily moving between various asset classes, this facility enables investors to rebalance their investment portfolio, which will lower volatility and assist in achieving the desired financial objectives.

This periodic transfer of funds from one mutual fund scheme to another helps an investor save the time and effort usually required for multiple transfers from one market instrument to another. Moreover, an investor can choose the recurring date for such transfers or have it based on their schedule/investment plan for specific transactions. Investors can easily start a STP on Kuvera. Kuvera is a zero-commission investment platform that allows investors to invest in direct mutual fund schemes without commission Here is a link to a video explaining how one can start a STP in seconds on Kuvera.

When it comes to investing in equities, an investor has a choice of whether or not to use the Systematic Transfer Plan (STP). To determine whether or not an STP is advisable for an investor, one must first evaluate three key factors. These are your current allocation to equity investment, your risk profile, and your tolerance for market activity. Illustration - Let us understand when a STP can be useful through an example:

Let's use the example of an investor who sells his farmland and receives a sum of INR 40,00,000. He might place the entire sum in a liquid fund or money market fund (debt mutual funds - with historically stable returns), and then instruct the fund house to transfer Rs. 1,00,000 per month for the following 40 months into an equity mutual fund. This will lower acquisition costs and assist in reducing volatility.

By spreading their lump sum investment over a specific time period, this method assists investors in avoiding becoming trapped in a fund at its highest Net Asset Value (NAV). The same STP procedure might be used to exit an equity plan upon retirement or to reach the intended financial goals by moving from an equity fund to a debt fund.

You can transfer funds only between mutual funds schemes managed by the same asset management company. Typically, investors have to do at least 4 transfers per year. You can avail a weekly, monthly, or yearly option. The monthly transfer is the most popular option amongst investors. Most mutual funds set a minimum threshold of INR 500 for monthly transfers through STP.

What Are The Benefits of STP?

• Systematically Switching The Mutual Fund Investments

An STP is a straightforward redemption and investment tool. However, both transactions take place concurrently and on a regular basis without the investor having to take any action apart from opting for STP initially. As a result, it enables investors to switch their investments across several mutual fund schemes automatically.

• Aligning Investment Objective

Investors can use STP to move investments gradually from a debt scheme to an equity scheme or vice versa. The main goal of using the STP facility is to match the investor's risk profile with that of their investment portfolio, in an effortless convenient manner. An ambitious investor would prefer to convert from debt to equity investments, whereas an investor nearing goal completion might prefer to reduce investment risk by shifting from equities to debt investments. Another useful strategy is to invest a lump sum in a mutual fund scheme, designate that scheme as the source scheme, and then use systematic investments to swap the assets to other mutual fund schemes.

• Getting Rid of Timing Bias

The investment transactions are automatically completed after one registers a STP, which removes the timing bias for the investors. When the markets are rising, one might not be motivated to buy equities, and similarly, when the markets are falling, one might not be motivated to sell equity. However, it's possible that investors won't be able to predict market trends well enough to schedule their investments. Instead, developing a feeling of financial discipline is necessary to easily advance towards financial goals. The investors are appropriately empowered by STP to move toward their financial objectives.

Cost and tax benefits of STP

A redemption transaction in the source scheme and an investment transaction in the destination scheme are processed by a STP concurrently. Due to the fact that the redemption transaction through STP is treated equally to ordinary redemption transactions, it will be taxed at the same rates as regular mutual fund redemption transactions. Depending on how long an investment has been held, gains can be categorised as either short-term capital gains (STCG) or long-term capital gains (LTCG). The taxes of mutual fund units upon redemption, whether through STP or otherwise, is summarised as follows:

How Does Kuvera's Systematic Transfer Plan Calculator Work?

Kuvera’s STP calculator can tell you how many units of the target scheme you can purchase through your STP and their potential future value.

How To Use Kuvera's Systematic Transfer Plan Calculator?

1. Select Expected Source Scheme Return: Select the expected source scheme mutual fund scheme return in percentage.

2. Select Expected Target Scheme Return: Select the expected target mutual fund scheme return in percentage.

3. Enter the initial investment amount in the Kuvera's STP Calculator

4. Enter the STP date, i.e. day of the month/quarter when you wish to undertake the systematic transfer.

5. Enter the transfer amount- the amount which you wish to transfer from the source mutual fund scheme to the target mutual fund scheme every month or quarter.

6. Enter Period- Select the frequency monthly or quarterly frequency for the STP.

7. Enter From Date- the date on which STP will commence.

8. Enter To Date- the date on which STP will end, i.e., no more transfers beyond this date.

9. Press Calculate

10. Kuvera's STP Calculator will tell you how many units of target mutual funds you can purchase and the value of your investment in the target mutual fund at the end of your STP.

11. It will also tell you how many units of source mutual funds you will have as a balance at the end of your STP and their value.

12. It will also show the cash flows on a monthly or quarterly basis.

Conclusion

An STP is a great way for investors to make smart decisions regarding the growth of their wealth, and make a convenient transfer from one mutual fund plan to another in an effortless manner in order to take advantage of systematic investing rather than having to worry about buying and selling stocks constantly. An STP calculator can help you calculate how much your STP transactions will net you if you use the STP facility when you want to invest in mutual funds.

To manage and track your investments, get started on Kuvera. Invest for your goals in commission-free Mutual Funds, online Fixed Deposits, Indian stocks, and more. Kuvera is your safe space to invest.

FAQs

What is the STP-Systematic Transfer Plan?

A systematic Transfer Plan (STP) is a facility by which a predetermined amount can be transferred from one scheme of mutual funds to another scheme at predetermined intervals.

What is the minimum amount which one needs to invest through STP?

The minimum amount which one needs to invest through the STP depends on the mutual fund scheme in which you are investing, generally, it is INR 500 for monthly/quarterly transfers.

What is the minimum number of transfers which one needs to make through the STP?

The minimum number of transfers which one needs to make through the STP facility depends on the mutual fund scheme in which you are investing. Typically, you can choose the frequency to be daily or monthly, or quarterly.

What is the difference between STP and SIP?

A Systematic Investment Plan(SIP) is a mechanism that allows investors to make periodic investments into mutual fund schemes on a fixed schedule from their linked bank account. In contrast, a Systematic Transfer Plan(STP) is a mechanism by which an investor who has invested in one scheme can move money from one fund to another.

How can I use the STP facility?

Investors can start a STP in seconds on Kuvera. Kuvera is a zero commission-based investment platform that allows investors to invest in direct mutual fund schemes without commission. Follow these steps:

1. Login to the Kuvera app.

2. Tap on the cart icon and go to STP.

3. Select "Add STP".

4. Choose the fund from which you want to transfer, the destination fund, the amount, frequency, start date and number of transfers, and press "Confirm".