Smart things to know about Systematic transfer plan 1) The investors who have a lump sum to invest in equity can also use rupee cost averaging by using the systematic transfer plan (STP) facility offered by mutual funds. 2) The lump sum is first invested in a low risk fund, termed source fund. At pre-fixed intervals, the amount is shifted from the source fund to the chosen equity fund(s), termed target funds. 3) The investor avoids the risk of timing the equity market by investing periodically. At the same time, the funds earn market returns in the debt fund till they are transferred. 4) The transfer from the source fund is equivalent to the purchase in the target fund. These transactions occur at the applicable NAV on the date of transaction. 5) The investor can cancel the STP and withdraw funds from the debt fund after a notice period to the mutual fund. This can be used in an emergency or if he wants to change the investment plan. 6) The STPs in an equity market work best when the market exhibits volatility. In a rising market, the investor can earn higher returns by investing as early as possible.
Posted on: Sat, 15 Jun 2013 04:50:55 +0000
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