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Chapter 5 Systematic Transfer Plan - Best Way to Mitigate Risk

Systematic Transfer Plan (STP) is a way by which an investor can invest lump sum amount in a scheme and regularly transfer a fixed or variable amount into another scheme.

There are two types of STP –

Fixed Systematic Transfer Plan

In Fixed STP, an investor can opt to transfer fixed amount after an interval of time from one scheme to another.

Capital Appreciation Systematic Transfer Plan

In Capital Appreciation STP, an investor can opt to transfer only capital gains from one scheme to another.

For example, an investor had invested Rs 1 crore in ICICI Pru Arbitrage Fund (G) and opted for capital appreciation STP to ICICI Pru Focus Fund (G). Thus, every month Rs 50,000 was invested in ICICI Pru Focus Fund (G). After 5 years, the value of investment in ICICI Pru Arbitrage Fund (G) remained Rs 1 crore while the monthly STP created a corpus of Rs 45 lakh.

*Assumed ICICI Pru Arbitrage Fund (G) Return is 6% p.a. & ICICI Focus Fund (G) Return is 15% p.a.

Importantly, investors should understand that STP is a risk mitigation strategy. It can protect investors from large losses in adverse scenario but it will also reduce returns when market is in a Bull Run.

Key Takeaways

  • Systematic Transfer Plan (STP) is a way by which an investor can invest lump sum amount in a scheme and regularly transfer a fixed or variable amount into another scheme.

  • There are two types of STPs – Fixed STP and Capital Appreciation STP.

  • STP is a risk mitigation strategy

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