Systematic Transfer Plan In Mutual Funds
A Systematic Transfer Plan, or STP, lets you move money from one mutual fund to another in fixed instalments instead of shifting the full amount at once.
How Does STP in Mutual Funds Work On INDmoney?
An STP in mutual funds works by moving money from one scheme to another at regular intervals. The fund from which money is transferred is called the source fund. The fund into which money is invested is called the target fund.
In most STPs, the source fund is a liquid, debt or lower-volatility fund, while the target fund is an equity or hybrid fund. This helps investors park a lumpsum first and then transfer it gradually instead of investing everything into equity on one day.
Think of STP like a SIP funded by your existing mutual fund investment. In a SIP, money moves from your bank account into a mutual fund. In an STP, money moves from one mutual fund to another mutual fund.
Suppose you receive ₹6 lakh as a bonus. You want to invest it in an equity mutual fund, but you are not comfortable putting the full amount into equity at once.
You can first park ₹6 lakh in a liquid fund and set up an STP of ₹50,000 per month into an equity fund.
Every month, ₹50,000 worth of units are redeemed from the liquid fund and invested in the equity fund. After 12 months, the full ₹6 lakh gets moved into equity in stages. During this period, the untransferred amount continues to remain invested in the liquid fund.
This reduces the risk of entering equity at a single market level.
Key Features Of STP In Mutual Funds On INDmoney
Automate Your STP Transfers
Set up an STP once and let future transfers happen automatically as per your chosen amount and frequency. You do not have to manually redeem from one fund and reinvest into another every time.
For example, if you want to move ₹6 lakh from a liquid fund to an equity fund over 12 months, you can set a ₹50,000 monthly STP instead of doing 12 separate manual transactions.
Reduce One-Day Entry Risk
STP helps reduce the risk of investing a large amount into equity at one market level. Since the money moves in parts, each transfer buys units at that day’s NAV.
For example, if markets fall after your first transfer, later STP instalments may buy equity fund units at lower NAVs. STP does not remove market risk, but it reduces dependence on one entry date.
Deploy Lumpsum Gradually
STP is useful when you receive a bonus, FD maturity, property sale amount or any large surplus and do not want it to sit idle. You can park it in a source fund and transfer it into the target fund in stages.
For example, instead of investing ₹5 lakh into an equity fund at once, you can move ₹50,000 every month for 10 months while the remaining amount stays invested in the source fund.
Move Money As Goal Changes
STP can also help when a financial goal is approaching. Instead of keeping the full amount exposed to equity till the last moment, you can gradually move money into a lower-volatility fund.
For example, if your child’s education payment is due next year, you may use STP to slowly shift money from an equity fund to a liquid or debt fund over several months.
Types Of Systematic Transfer Plans In Mutual Fund
Fixed STP
A Fixed STP transfers the same amount from the source fund to the target fund on every scheduled date.
For example, if you set a ₹25,000 monthly STP, ₹25,000 gets moved every month from the source fund to the target fund until the plan ends or the source balance runs out.
Capital Appreciation STP
A Capital Appreciation STP transfers only the gains earned in the source fund, while keeping the original principal invested.
For example, suppose you invest ₹5 lakh in a source fund. If the fund value grows to ₹5.08 lakh, the ₹8,000 appreciation may be transferred to the target fund while the original ₹5 lakh stays in the source fund.
Flexi STP
A Flexi STP transfers a variable amount instead of a fixed amount. The transfer may depend on a rule, formula or market condition defined by the AMC.
For example, the STP may transfer a higher amount when markets fall and a lower amount when markets rise. This structure is more dynamic, but availability depends on the AMC and scheme rules.
Taxation On STP In Mutual Funds
This is the part many investors miss: every STP instalment is treated like a redemption from the source fund.
Even though money is moving from one mutual fund to another and not coming to your bank account, the source fund units are being redeemed. That redemption can create capital gains tax if the source fund value has gone up.
For example, suppose ₹50,000 is transferred from a liquid fund to an equity fund. If the units redeemed from the liquid fund have a gain, that gain may be taxable depending on the fund type and tax rules.
If the source fund is a debt or liquid fund, taxation may differ based on when the units were bought and how the fund is classified. For specified mutual funds acquired on or after 1 April 2023, Section 50AA treats gains on transfer or redemption as short-term capital gains. The definition of “specified mutual fund” has also been amended, with a debt-and-money-market threshold applying from 1 April 2026.
Exit load may also apply if units are redeemed before the fund’s exit-load period ends. So before starting an STP, investors should check both tax impact and exit load on the source fund.
Frequently Asked Questions
No. SIP and STP are different. In a SIP, money comes from your bank account and gets invested into a mutual fund. In an STP, money is already invested in one mutual fund and gets transferred into another mutual fund. A simple way to understand it: SIP is funded by your income or bank balance. STP is funded by an existing mutual fund investment.
Use STP when you already have a lumpsum invested or parked in a mutual fund and want to move it gradually into another fund. Use SIP when you want to invest fresh money from salary, business income or monthly savings.
Investors use STP to avoid investing a large amount into equity at one market level. For example, if you have ₹10 lakh and the market looks volatile, you may not want to put the full amount into an equity fund immediately. STP helps you move the amount in stages.
STP is not always better. It is useful when you want gradual deployment. Lumpsum may work if you are comfortable investing the full amount at once and can handle market movement. For example, if equity markets rise sharply after you start an STP, lumpsum may have performed better. But if markets fall soon after investment, STP may reduce the impact of one bad entry point.
Yes, STP can also be used to move money gradually from equity to debt or liquid funds, depending on scheme availability. This can be useful when a goal is approaching and you want to reduce equity exposure gradually instead of exiting everything on one day.
STP does not remove market risk. The target fund can still go up or down after each transfer. What STP does is reduce one-day entry risk. Instead of investing the full amount at one NAV, you enter across multiple NAVs over time.
Exit load may apply if units are redeemed from the source fund before the fund’s exit-load period ends. For example, if a liquid or debt fund has an exit load for early redemption, every STP instalment within that period may be affected. Always check the source fund’s exit-load rules.
There is no fixed ideal duration. It depends on the size of the lumpsum, market conditions and your comfort with gradual deployment. For example, ₹1 lakh may be moved over 3–4 months, while ₹20 lakh may be spread over 12 months or more. The goal is to reduce timing risk without delaying investment unnecessarily.
Usually, STP is useful only when you already have money invested in a source fund. If you do not have a lumpsum and want to invest from monthly income, SIP may be more suitable.
STPs are generally done between schemes of the same AMC or fund house. You should check scheme availability before setting it up.
Set Up an STP in Mutual Funds on INDmoney
Open a free account, choose your source fund and target fund, and move your lumpsum gradually through a Systematic Transfer Plan.