Allocation to asset classes depends upon life stage, goals and risk appetite. Mutual funds allow an increase in allocation to an asset class using the systematic transfer plan (STP). This way, investors can transfer investments from one scheme to another. (Content courtesy CIEL, ET Contributors)
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Asset allocation
Asset allocation can be achieved using STP in various ways: Under the first way, a lump sum amount can be invested in a low-risk debt fund and periodically a portion can be switched into an equity fund. Secondly, one can also periodically withdraw gains from equity and move to a lower risk debt fund.
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Options galore
There are different variants of STP on offer. Fixed STP: A fixed STP amount gets regularly transferred from one scheme to another. Capital appreciation/trigger STP: Transfer to another scheme is made only when a trigger event occurs. For instance, transfer to the other scheme is made when profit is in excess of a defined amount.
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How to set up STP
Investor needs to fill up an STP enrolment form and indicate the source and target scheme names, STP variant name, amount to be transferred (in case of fixed STP), period of STP and frequency. STP can also be set up by filling in similar details on the online platform of the mutual fund.
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Tax and exit loads
STP involves redemption from one scheme and investment into another scheme. Tax on gains will be subject to capital gains depending upon the period of holding. Exit load as applicable may be levied on the redemption leg of the STP. Some fund houses exempt the exit load applicable for STP.
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Remember
Lien marked units are not eligible for STP. The STP may stop when balance units in the source scheme reduces to an amount lesser than the minimum STP value.
