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What is Systematic Transfer Plan (STP)

by Manish Chauhan · 136 comments

Imagine a scenario when you want to invest a big lump sum amount in stock market ? As markets are volatile and can go up or down very soon , there is always risk of loosing a big chunk of your investment (Learn about Stock Markets) . Take a case where you want to invest 10 lacs in Equity Mutual funds and suddenly market crashes for next 2 months, In this case a big chunk of your investment will be lost, on the other hand if market moves up pretty fast, you can make a good profit. Here you have to decide your main focus. If it’s minimizing risk and getting good decent returns in long-term, You should use something called Systematic Transfer Plan (STP) .

What is STP (Systematic Transfer Plan)

You should first understand SIP . SIP is way of investing in Mutual funds monthly, where a fixed amount of money goes from your Bank Account to Mutual funds, so if you do a SIP of 1,000 for 1 yr, it means that every month on a fixed date (chosen by you) 1,000 will be invested in a Fixed Mutual fund you choose. Lets understand STP now, In STP we invest a lump sum amount in some Mutual Fund and then a fixed sum is transferred  from that mutual fund to another mutual fund .

How does Systematic Transfer Plan works (STP)

For Example : If you have Rs 6 lacs lump sum to invest and you want to invest in HDFC Top 200 , The steps you will have to follow are :

  1. Choose a good Debt fund or Floating Rate Mutual Fund from HDFC , which allows STP to HDFC Top 200 .
  2. Invest all the money in the Debt Fund .
  3. Now you can start a 10k/20k/30k  per month STP from HDFC Debt fund to HDFC Top 200 .

Why and When to use STP

When will it work : STP will make sense from DEBT -> EQUITY when markets are mayvery volatile and you dont want to take risk with your money in a short span of time, If you invest through STP in markets and markets fall or have lots of volatile moves, then this situation will be better than the one time investment option. This is still better than putting money in Bank and doing a SIP, because at least you money is earning some returns on debt part in STP .

When will it not work : Incase markets are already at the end of a Bear market and markets can starts it upmove anytime, in that case STP will not deliver the best returns like SIP, one time investment is a good choice in that case. But then you never know that when will markets start go up. Given that a retail investor does not have all the tools and time to research the markets, it’s not advisable to invest lump sum in any case. It’s better to get 4-5%  less returns than to see a huge downside of your money in short time, Smart investors think about returns, Smartest one’s take care of risk first .

Understand How to time markets using Nifty PE analysis

Difference between SIP, STP and SWP

  • SIP : The way SIP works that your money is in your Bank Account and every month a fixed sum is taken away from your Bank and invested in a Mutual fund .
  • STP : The way STP works is, all your money is actually invested in a Mutual funds itself (probably Debt) and units are sold every month and its invested in another Mutual fund (probably Equity) or vice versa .
  • SWP : However If you redeem your units in mutual funds every month and get it deposited in your Bank accounts , it’s called SWP (systematic Withdrawal Plan) , which is recommended to liquidate your mutual funds corpus after you see a good bull market to protect your investment .

Difference between SIP and STP

4 advantages of STP

STP has 4 advantages and works in 4 ways for you . They are :

Works as SIP : You can invest in a Debt funds and from there you can start a STP to an Equity Fund , so it works like a systematic Investment Plan (SIP) .

Works as SWP : So STP can also work like SWP, because with some funds you can do transfer from Equity funds to Debt Funds, so when markets look risky to you, you can start a STP from Equity -> Debt funds, which will act like SWP .

Liquidity : Generally one does STP from Debt -> Equity funds, so your money is invested in Debt fund. This means you can sell it anytime if you want. Hence it works like a Emergency Fund also. Incase you need money urgently, it can act like a liquid asset (at least for the time being in the start when you have more money in Debt fund)

Growth in Money : Not to forget that your money is invested in Debt funds, so your money is also growing at debt returns , at least the part which is lying in the debt funds .

Some Helpful Tips

  • Invest in ELSS , If you want to invest in ELSS schemes and have lump sum money , better put it in a debt funds and do a STP .
  • Rebalance your portfolio, Use STP as a tool to rebalance your asset allocation, when your equity part goes up , start STP from Equity-Debt for 6 months or 1 yr, and bump up your debt part and if your Debt part goes up, do Debt -> Equity STP . Power of Asset Allocation and Portfolio Rebalancing
  • Take advantage of market condition , If markets have gone too high now and every other person on the road is talking about Stock and stock markets are more famous than “Saas Bahu” Serials, immediately start your STP from Equity to Debt (literally Rush) . On the other hand when markets are deep down and “Why don’t you buy stocks” is feels abusive and everyone face looks like some body has died at home when you mentions stock markets, know that it’s a time to start a STP from your Debt – > Equity (Literally rush again) . You don’t need to see any indicators to predict the markets, the two real life scenarios I have described here are enough, try to remember markets around 2007 End(bull market) and Jan 2009 (markets lowest point) . STP can be used as switching mechanism in ULIP , though it’s very restrictive and with less choices .
  • Using STP when an important goal is near, If you are saving for some important goal like Child Education , Buying Home or Retirement and your goal is approaching near by , don’t wait till target date , you don’t want to see your Money dip by 40-50% within 6 months or so if markets suddenly crash , start moving your money out of equity and transfer it to Debt now through STP .

Two types of STP

There are two types of STP plans , Fixed and Capital Appreciation. In Fixed Plan means a fixed sum will be transfered to the target mutual funds , on the other hand in Capital Appreciation , only the amount of capital which is appreciated gets transferred , that was the original lumpsum amount invested in the start is protected . Capital Appreciation choice is only with Growth Plan and not dividend plan . Here is the list of all the STP Plans as of now .

Important Points

  • Typically, a minimum of six such transfers are to be agreed on by investors in STP , just like SIP
  • Generally most of the mutual funds allow Debt -> Equity STP and not reverse , Only handful of Mutual Funds like Kotak allows it .
  • STP is a facility for convenience , when the transfer happens from one mutual funds to another its still considered as selling of mutual funds and then buying another one , so tax rules applies in the same way .
  • Most of the funds allow only Monthly and Quarterly STP , some allow weekly and fortnightly also .
  • There can be some minimum amount requirement for starting an STP like say at least 1,00,000 needs to be invested in Debt funds to start a STP to Equity . Some restriction like this will be there .
  • There can be additional Switching Charges for availing STP facility
  • Entry load and Entry load may still apply while buying and selling of mutual funds through STP.
  • Securities Transaction Tax @ 0.25% will be deducted on equity oriented funds at the time of redemption or switch to another scheme in STP .
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{ 136 comments… read them below or add one }

1 Hemant Beniwal March 28, 2010 at 3:48 pm

I think you have convered everything about STP.

Very detailed.

Reply

2 Manish Chauhan March 28, 2010 at 9:02 pm

Hemant

One thing which I think I could have added is the exact data on what all STP is allowed from different companies , but that would have made me do lot of work :) . Do you have any data ?

Or any one else has any data ?

Manish

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3 Hemant Beniwal March 29, 2010 at 2:53 pm

@ Manish

STP Information: I think this will help readers.
http://www.slideshare.net/tflindia/stp-information

You missed one point there are 2 type of STP one is Fixed STP & second is capital appreciation STP.

Capital Appreciation on investment in the scheme is systematically transferred to any desired scheme on a monthly or quarterly basis.
This can be used as capital protection plan that you place your amount in debt & only the appreciation part is transferred to equity. Corporate also use this as their liquid money is parked with mutual fund on which they don’t want to take any risk but they systematically transfers the appreciation part to build up their equity portfolio.
It also can be used to book profits from equity funds.

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4 Manish Chauhan March 29, 2010 at 3:04 pm

Hemant

thanks for the info … I have embedded the Slide in the article itself :)

manish

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5 Hemant Beniwal March 29, 2010 at 3:04 pm

@ All Businessman & Professionals

STP is a great system for Businessman & Professional who shy away from SIP as they are not sure about regularity of Income. They can keep 3-4 months balance for STP in debt fund & can enjoy benefits of SIP.

It’s also extremely useful if you don’t want to put the big amount in one go.

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6 Rocky March 28, 2010 at 6:00 pm

Good write-up Manish, as usual!
An STP which I started was when Large-caps looked overvalued (my perception) and mid-caps had not moved.
So it was from DSPBR TOP100 to DSPBR Small&Mid-cap which in hindsight has paid rich dividends.
But my decision was risky I think.
-rocky

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7 Manish Chauhan March 28, 2010 at 9:00 pm

Rocky

Hmm.. yea that seems to be very risky . Nice to get this info that they allow STP from Large cap to Mid cap fund :)

How is the performance of those funds now ? Do you think a one time selling and then putting all money in Mid cap fund would have given you better returns ?

Manish

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8 NARESH SHARMA March 28, 2010 at 8:11 pm

Dear Manish,

Your article on STP left me in more of a conflict than the solution provider as you are “Thought As”. The article is full of “MAY/S” and deserves the clarities about the real benefit of STP. Though I claim to be a little financial literate but you will agree that everything in any market can’t be left on estimation. We owe these to the investors!!!

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9 Manish Chauhan March 28, 2010 at 8:40 pm

Naresh

Err .. Which line confused you .. I tried my best to be clear , can you point me where exactly you felt conflict ? I guess STP should be clear atleast ?

Manish

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10 Anoop March 28, 2010 at 8:53 pm

Hey Manish,

I wanted to know if any STT is involved when the STP occurs. I am planning to do so but got this doubt. I thought to the AMC and find it out. But if you know please let me know.

Thanks,
Anoop

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11 Manish Chauhan March 28, 2010 at 8:56 pm

Anoop

STT does not come into picture here .. you are not buying Stocks directly from your demat account , its just transacting in mutual funds , so dont worry about STT . Its not related . Why do you get that doubt ? Are you using STP already ?

Manish

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12 Anoop March 29, 2010 at 8:43 am

Hi Manish,

Even MF are redeemed then we pay taxes. As far as I know STP is equivalent to selling in one and buying the other. If the transfer is from one equity fund to any other fund (debt or equity), then we have to pay STT, though I am not sure about from Debt to Equity transfer. That is what I need to find out.

If not STT, there is some taxes applicable.

Thanks,

Reply

13 Manish Chauhan March 29, 2010 at 2:41 pm

Anoop

I think you are correct here .. I found out that

Securities Transaction Tax @ 0.25% will be deducted on equity oriented funds at the time of redemption or switch to another scheme in STP .

Its not a big one :)

Manish

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14 Zamil March 28, 2010 at 10:21 pm

In my opinion, STP is somehow complicated as there can be so many restrictions / conditions. Though, Manish has presented the concept clearly but on execution side, it is still complication. Personally, I’ll not go for STP.

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15 Manish Chauhan March 29, 2010 at 2:42 pm

Zamil

It depends on the requirement .. Its only recommended in case you have lumpsum to invest and not otherwise .

Manish

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16 Naveen February 1, 2012 at 9:07 am

Hi Zamil,

I am a salaried person, and I think STP is helpful for me in managing my MF SIPs easily. Here is what I do,

First thing, I include my MF SIPs in my monthly expenses, so I count SIP requirements too in my emergency fund calculation. So I keep 6 months worth of SIPs in Liquid Funds and do STP from there. (I prefer manual SIP to ECS one).
Regarding charges, Liquid funds do not have any entry or exit load(majority of them, few have upto a month, so doesn’t matter) and they provide better than savings account returns and also they are liquid :)

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17 Subhendu Nath March 29, 2010 at 12:00 am

Thanks for a very elaborate and detail article. One thing I like to mention here One similar product available in mutual fund industry now that is RELIANCE SMART STEP. This also STP , but the amt of STP depend upon the market. According to the market condition amt will switch from Debt fund To Equity fund. Mrket conditioned is determined by a scientific model created by Reliance mutual Fund by observing the BSE 30′s movement. Every 8th of the month this model run, and by the outcome of the Model RMF decide whether the Market is High,low , Average- amt is switched on 10th. Their r Four different Plan available now. A investor can start SIP and STP simultanously here but the Minimum SIP amt wl b 1500/-. SIP amt will first go to a Liquid/Debt Fund and then STP to a equity fund. This product I think hedge the risk or give extra cution on Equity investment.
Subhendu

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18 Manish Chauhan March 29, 2010 at 2:44 pm

Subhendu

Nice to know about reliance smart step . looks attractive .. will try to study it :)

manish

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19 T.S.ASHOK February 25, 2011 at 6:36 pm

Hi, I also have seen that. It seems good..

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20 Marshal March 29, 2010 at 10:11 am

very good info manish

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21 Manish Chauhan March 29, 2010 at 2:45 pm

Marshal

Thanks , what do you think about using STP in a scenario when we dont have lumpsum ?

manish

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22 Swanand March 29, 2010 at 3:53 pm

Hi Manish,

Nice writeup. You mentioned that “This (STP) is still better than putting money in Bank and doing a SIP, because at least you money is earning some returns on debt part in STP ”

Wouldnt the same money thats lying in the bank earn me some interest. Besides lets say if I had 6L to put in the market over a year, I can always go in for short terms FD’s and still ensure that 50K is invested in the market.

Or maybe I am missing a bigger point. Pls enlighten.
~Swanand

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23 Manish Chauhan March 29, 2010 at 4:42 pm

Swanand

Hmm .. actually bank will give you just a small interest rate thats 3.5% and in reality on average it turns out to be zero most of the times , as its the minimum balance between 10 and 30 i guess .. so if you have 2 lacs in your bank account for 25 days and on 26th you withdraw the amount , your minumum balance is 0 and interest too :)

So in debt funds atleast the returns would be above 6-7% . So there is some marginal appreciation .

manish

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24 Nitin March 30, 2010 at 2:37 am

Manish,

As per my information , RBI has changed the rule and now bank has to pay the interest based on the Daily balance. Please see

http://wealth.moneycontrol.com/features/bank-deposits/get-double-interest-on-your-savings-account-/12842/0

This is effective from 1 April 2010.

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25 Manish Chauhan March 31, 2010 at 1:38 am

Nitin

Yea i saw that , however this will make a good increase in interest rate income as earliar most of the times the interest was not 3.5% , it was 0% , Monika Halan talks about how it happened here : http://www.livemint.com/2010/03/16213510/How-35-interest-rate-on-savi.html

Manish

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26 Anu March 29, 2010 at 6:09 pm

You explained STP in simple language. Thanks its a great article. I completely agree that it is a great way of investing if you have lumpsome amount, especially these days.

There not many MF which offers weekly and fortnightly SIP. Do you know which ones allow that?

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27 Manish Chauhan March 29, 2010 at 6:32 pm

Anu

I didnt that info at one place :( .. try searching :)

Manish

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28 Hemant Beniwal March 30, 2010 at 7:11 am

@ Anu

Please find data of Weekly SIP/STP for different mutual funds.

http://www.slideshare.net/tflindia/weekly-sipstp-mutual-fund

But in long term it doesn’t make any difference that you are going for weekly SIP or monthly SIP.

If you still want to have weekly transactions you can design your own weekly SIP. Say you have 4 SIP in different funds choose dates like 1st, 7th, 15th & 25st.

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29 Anu March 29, 2010 at 6:11 pm

Also manish when u have time can u please write about the ‘Fixed Deposit’ offered by Private companies and not banks. Are they safe?

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30 Manish Chauhan March 29, 2010 at 6:34 pm

Anu

Yes ,.. its coming

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31 dr kishan March 29, 2010 at 10:19 pm

manish
nice topic and easily written. i just have a doubt. is the stp protocol amc specific or is it fund specific, i.e. does an amc which allows stp applies the system for all its funds or does it do for only some of its funds.
what i know till now is that there may be a load for exiting the fund scheme which is called exit load. then what is STT? is it over and above exit load and is it applicable in all types of bonds or only for some types? is it levied by all AMCs or only selective AMCs? is it applicable at all times or only if redemption within an year or so (like is the case with exit loads in some cases.)
is the STT applicable also during all STPs or only while shifting from equity oriented funds to other funds
lastly i think that its not necessary that both equity funds and debt funds of the same AMC be high rated. it is possible that a debt fund of an AMC is good and the Equity fund of another AMC is good. in that case STP will not be as helpful as a planned initial investment into a debt fund followed by SWP from the said debt fund and SIP into an equity fund of another AMC. i know that it shall be cumbersome but if we do some home work and understand the how to rate good mutual funds (as u have told in ur past discussions) then this effort will be worth it. what r ur ideas? am i being too greedy?
do all AMCs give the benefit of SWP or no

dr kishan

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32 Manish Chauhan March 30, 2010 at 10:14 am

dr kishan

STP is AMC specific , some do not provide that facility , all AMC have a list of funds for which they will allow it . STT is securities transaction tax which is applicable when you buy and sell equities . however i have no idea why STT is applied in this case .. i just got info that its there .. its there only on selling , not buying.

Manish

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33 Hitesh March 29, 2010 at 10:49 pm

Excellent article Manish
Cleared my fundas wrt STP.
Keep up the good work…

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34 Hitesh March 29, 2010 at 10:58 pm

Just a request..
please write something for young people who have just started earning a year or so back…
best practices for investing and what goals to aim for..
how to be disciplined etc.
Thanks
Hitesh

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35 Manish Chauhan March 30, 2010 at 10:49 am

Hitesh

Yup .. coming up

Manish

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36 ronak ( jagofan ) March 30, 2010 at 9:02 pm

Hitesh ur saying right …

Manish we all need it ..

so plz

FROM ALL JAGO FAN …

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37 Manish Chauhan March 31, 2010 at 1:40 am

Yup .. coming up .. Be patient :)

Manish

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38 Kunal April 22, 2010 at 4:41 pm

I am also in support of such post

:)

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39 NKanani March 30, 2010 at 11:59 am

Great article! Thanks Manish…. I was just investigating how should I do an STP for a lumpsum amount and this is the right source of information.

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40 Manish Chauhan March 31, 2010 at 1:46 am

Nehal

Great to hear that :)

Manish

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41 Anu March 30, 2010 at 5:50 pm

@ Hemant

Thank you very much for your help. I also wrote to HDFC mutual fund house they said i can have. I just want to try bi weekly SIPs.

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42 krish March 30, 2010 at 8:03 pm

Great article Manish….

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43 stg March 31, 2010 at 4:17 pm

STP is a bit irksome to say the least. I tried to do an STP form Sundaram MIP and Reliance MIP thru HDFC online but ended up being amused. HDFC online is not allowing STP from those funds and when I contacted Sundaram AMC and Reliance AMC they both replied saying there is absolutely no problem in doing STP from any fund to any fund. Now HDFC support does not know a damn clue about the whole issue and the guys I speak have no idea as to what is happening.

Also STP will be cumbersome if you are investing in many funds, then you have to invest in bulk in a debt fund in each of the AMC and then do an STP to the equity fund.

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44 Manish Chauhan March 31, 2010 at 7:54 pm

stg

Hmm .. i would say that if you try to use STP without real need and take it as a standalone tool , then yes it can become confusing and irksome . So only when you really need it , then take it .

Manish

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45 Praveen April 1, 2010 at 12:10 am

Hi Manish,

Thanks for the great article and your blog, it has been immensely helpful.

How would the costs of entry load and exit load play out, does any of these funds offer free switches like ULIPS

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46 ravii April 2, 2010 at 2:43 pm

As usual nice article manish!

BTW, HDFC MF is introducing a new choice in their Systematic Transfer Plan offering – called HDFC Flex Systematic Transfer Plan. The addendum (hosted at: http://bit.ly/byczUs ) issued by them in this regard has very detailed information & a couple of demonstrations as well.

Effectively, this Flex STP enables VIP style investment into the equity funds from HDFC MF stable.

This plan comes into operation April 12th 2010 onwards

Have a look at this!

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47 Puneet April 3, 2010 at 9:16 pm

Hi Manish,

I have been reading your articles for last month and I must say that I am quite impressed and inspired.. I was about to purchase LIC Wealth Plus and one more LIC policy for child education but after reading your articles, I decided to put that decision on hold.
I have now started learning basic stuff of investing through your articles and have got a demat account opened with icicidirect..

I intend to start investment with Mutual Funds..
I am interested in going through the STP route and was exploring the same in icicidirect but couldn’t find any way of doing so. However I found some thing known a Switch In/Out where we can transfer money (manually NOT automated like SIP) from one scheme to another scheme of the SAME fund house.. Based on this, I have few questions..

Is Switch In/Out same as STP?
Is it necessary that STP works between funds of the same Found house? Can I set up a STP from a Debit fund of Fund House A to Equity Fund of Fund House B? If yes then how can I do it using icicidirect?

It will be great if you could clarify this.

Thanks in advance..
Puneet

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48 Manish Chauhan April 3, 2010 at 9:44 pm

Puneet

thanks for your comment :)

1) Switch IN means funds where money can come IN from a funds as STP . and Switch OUT means funds from which money can go out as STP . So if you want to do STP from A to B , A should be part of Switch OUT and B should be part of Switch IN .

2) STP from one fund to another will depend on fund houses rules , enquire through them :)

Manish

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49 Money Honey January 1, 2011 at 7:31 pm

what an idiotic answer to an intelligent question. Post my response do not delete.

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50 Manish Chauhan January 1, 2011 at 10:44 pm

MoneyHoney

Can you answer that question in that case :)

Manish

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51 Tirthankar Mukherjee April 19, 2010 at 1:31 am

I am looking forward to invest in Mutual Fund. I am planning to withdraw my money invested as the Stock Market (NSE/BSE in India) somewhat reaches its peak, and move all my investment to a debt oriented fund, again start SIP (in huge amounts) as the market crashes. Is there any financial instrument that can help to achieve my goal. I have heard that there are some financial tools that allows to move all funds from equity (MF) to debt under same AMC 2 times a year. Is this news correct ?

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52 Tirthankar Mukherjee April 19, 2010 at 2:11 am

Forgot to mention in my last post … as Subhendu Nath has posted about “Reliance Smart Step”, http://www.jagoinvestor.com/2010/03/what-is-systematic-transfer-plan-stp.html, can you please review on this product.

Thanks in Advance

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53 Tirthankar Mukherjee April 19, 2010 at 2:13 am

Its already 2:00 I am very sleepy, sorry for the wrong link , correct link is http://www.wealthforumezine.net/Product%20focus%20Reliance180110.html

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54 Manish Chauhan April 21, 2010 at 9:48 pm

Tirthankar

Cant review each product , you should evalute them yourself based on general lessons on this blog .

Manish

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55 Anand May 10, 2010 at 2:02 pm

HDFC MF also allows daily STP.

This is useful since most of the time markets are volatile and you get good benefit over the long term.

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56 Rahul Sadawarte June 21, 2010 at 9:45 pm

The STP principal can also be applied to Debt —-> Balanced fund (65% equity – 35 % debt). My experience with this option was very satisfatory. I have invested my father’s money in May 2007 thru this route and I got a CAGR of 21% in last 3 years. This happens for balanced fund and not for any pure equity fund.

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57 Manish Chauhan July 27, 2010 at 8:59 am

Rahul

Which funds did you invest in ? Can you share ?

Manish

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58 sameer May 11, 2010 at 5:54 pm

Thanks for information

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59 Manish Chauhan May 12, 2010 at 1:16 am

welcome

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60 A A May 14, 2010 at 11:35 pm

How to do STP on icicidirect? is it possible to avail STP using online trading portal?

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61 Manish Chauhan May 15, 2010 at 6:20 pm

I dont think so , you have to do STP seperately .

Manish

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62 Rajendra May 31, 2010 at 7:23 pm

Manish, First of all I want to thank you for explaining STP in very simple langauge. I am convinced and wish to invest through STP route considering volatility in current market. I have one question though. In your blog “How many Mutual Funds you should have “, you are recommending that retail investor should stay away from debt funds. How will that work if we want invest through STP route you explained above? Please help.

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63 Manish Chauhan June 1, 2010 at 11:10 pm

Rajendra

I am not sure if i directly said “Retail investors should stay away from debt in all cases” , it will be on some basis only . You can go for Debt fund if your situation demands

Manish

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64 Sarang August 18, 2010 at 8:54 pm

Hi,
I have been using STP for more than 4 years now. But I have started following this site recently. Though late, I have my 2 cents to add here.

1) HDFC Flex STP is a great working concept which I came to know from comments of this blog. I have tried to work with numbers through various market cycles over a period of 120 instalments. I found out that Flex STP was better or at least matched performance of simple STP. I will try this soon.

2) Many businessmen and professionals have varying or cyclical income patterns. Most of the salaried individuals also have variable pay, performance/festival bonus, sales commission, shift allowance, Overtime etc. on income side and various taxes, insurance premiums, membership/maintenance charges etc. on expense side which vary across months. This makes it difficult to have steady surplus for disciplined investment such as SIP.

From risk management perspective, one needs to diversify. So it is desirable NOT to invest in one scheme. It becomes very cumbersome to monitor and maintain balance in savings account for each of the SIP from various fund houses drawing out money at different frequency. If you are over cautious, you tend to keep more money in savings account compromising on overall returns. Or else a small error in tracking, and you could find cheques bouncing from your account.

STP saves you from all this trouble which enhances overall returns, and helps in financial planning as you have less number of variables to deal with. Thus biggest advantage of STP is that you can afford to be irregular in purchase of investment products, but still get benefits of regular disciplined investing as in case of SIP.

3) As per my experience min. amount to start STP is Rs.12000 in SBI MF. A few others need this to be 25000. These are little higher amounts to shell out compared to SIP. But for me they outweigh the benefits I get.

4) Earlier during entry load regime certain fund houses such as Reliance did not charge entry load for investment in equity funds through STP. So that was a good cost saving.

5) I completely disagree with suggestions of using STP in conjunction with market timing. Timing is critical for traders and not for long term investors in stock market. Systematic investing and that too in stock market is necessarily for the long term meaning time horizon of more than 5 to 7 years. (We are on Jago Investor and not Jago Trader :-) )

6) It is very useful for portfolio re-balancing. When you need to get rid of relatively poor performing funds and want to withdraw entire amount to be invested in a better performing fund, you have lump sum amount in between, which can be steadily routed with STP.

I would love to get feedback on this.
-Sarang

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65 Manish Chauhan August 21, 2010 at 5:47 pm

Sarang

I have only one point on your 5th point , timing is important for short term , however with some one having a view of 3-5 yrs, still timing would matter a lot , for very long term investors , timing is one which can be ignored .

With rest of your point , I agree

Manish

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66 Sarang August 21, 2010 at 10:35 pm

Manish,
I believe short term is for (active) traders for whom trading is primary source of income. For rest of us (passive) investors, SIP / STP are the tools which provide Rupee (or Dollar or whatever …) cost averaging. This is essentially to mitigate risks which arise due to market timing. In fact lack of correct timing. So speaking of SIP/STP and market timing together is contrary to each other. That’s the reason I disagree with timing bit. SIP/STP is more about discipline in investing essentially keeping your emotions aside. An attempt to time the market can be more influenced by emotions without your knowledge. I am firm on this view based on my experience of last 8 years of investing in mutual funds. It is really hard to believe how effective SIP/STP can really be without being complicated. But money seen in my bank account makes me believe it. If one possesses expertise to time and trade in markets, direct equity is a better option than mutual funds in my opinion.

Ultimately STP is a tool. It depends on individual how to use it.
-Sarang

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67 Manish Chauhan August 22, 2010 at 12:38 pm

Agree with you :)

Manish

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68 Suvarna February 3, 2011 at 4:31 pm

Dear Sarang,
Thank u very for the info provided. I wanted to start STP.As you have got a well practical experience on this can u suggest me Some good funds n which bank should i start this STP as my husband is planning to buy a new house in 2012 and by that time we are planning to gather as much money we can. As a lumpsome amount we can invest upto 60k. So please , your advise will be very useful to us.

Waiting for your response,
Thanks n Regards,
Suvarna.

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69 Manish Chauhan February 4, 2011 at 1:13 am

You can STP from any debt fund in HDFC to their equity funds like HDFC top 200 or HDFC equity , but that will be just 2 yrs considering your requirement .. In case you dont want to take any risk , better put money in plain FD for 1 yr or in debt funds

manish

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70 Jayashankar August 19, 2010 at 7:24 pm

Can STP from Reliance Growth Fund RP(G) or Reliance Natural Resources (G) to Reliance Equity Oppor – RP (G) or HDFC Equity Fund (G) through SIP?
Advance Thanks

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71 Manish Chauhan September 10, 2010 at 11:36 pm

You have to check with respective Fund house website . The information would be there

Manish

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72 Jayashankar August 19, 2010 at 7:25 pm

Can STP from Reliance Growth Fund RP(G) or Reliance Natural Resources (G) to Reliance Equity Oppor – RP (G) or HDFC Equity Fund (G) through SIP?
Advance Thanks

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73 Manish Chauhan August 21, 2010 at 3:39 pm

Did you check Fund House brochure or website ?

Manish

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74 Jayashankar August 21, 2010 at 3:54 pm

I glad after i got reply from u!
ya i browse http://www.moneycontrol.com/mutualfundindia/ and http://new.valueresearchonline.com/ads/splash.asp!
Can STP from Reliance Growth Fund to HDFC Equity Fund (G) through SIP?

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75 Manish Chauhan August 21, 2010 at 4:02 pm

Jayashanker

STP in different fund house is generally not allowed ,understand that STP is a way to keep cusomter inside the fund house, why will MF A allow customer to shift money in MF B :)

Manish

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76 Jayashankar August 23, 2010 at 12:22 pm

Glad advise me about STP for fund house different not allow!

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77 Manish Chauhan August 23, 2010 at 12:55 pm

Jayashankar

U will have to look at each fund house manually

manish

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78 amol September 8, 2010 at 12:43 am

Manish,

As STP uses approach of withdrawing some X amount periodically(monthly or weekly) and investing into equity fund(same AMC) does its periodic withdrawals attracts short term capital gain tax/STCG ?

Amol

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79 Manish Chauhan September 9, 2010 at 1:45 am

Amol

Yes , it would attract STCG , its might look like a bad thing as “tax” came into picture, but still you have to see that a periodic investment is done and STCG is a still less and you get some thing more than putting in Bank and doing simple SIP .

Manish

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80 amol September 8, 2010 at 9:58 pm

Manish,
continuing to my previous comment

What about the exit load when STP from debt fund to equity fund ? How profitable it will be if they put 1% exit load(since the withdrawal will be before 1 year) and short term capital gain tax/STCG
also,
How to find out which all debt fund allows STP into any of its equity fund ? This information is unavailable. For ex. suppose I decide to do invest X amount into one debit fund “HDFC Multiple Yield” and now want to do STP into HDFC Top 200 fund. Is it possible in this case?

amol

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81 Manish Chauhan September 9, 2010 at 1:17 am

Amol

Yes mostly Exit load is generally applied always in STP as its nothing with Selling one fund and buying the other, and STP is just a single transaction for both , thats all .

But some times AMC might wave off the exit load in some cases for some funds which they mention in their website.

About the list of funds in which its allowed , its most of the times there in their website , but for HDFC I didnt find it :)

Manish

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82 rahul sadawarte September 9, 2010 at 2:29 pm

Manish,

for HDFC STP is available for their balanced / debt & equity fund. For eg you can do the STP from HDFC MIP LT to HDFC Prudence (Balanced fund).

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83 Manish Chauhan September 9, 2010 at 7:15 pm

Rahul

thanks for the info , but where do common man see this info by himself ? Link ?

Manish

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84 Jayashankar September 10, 2010 at 6:39 pm

I want rs 6000 every month by SIP. which schemes name good?
Can have name of schemes good?
Thanks

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85 rahul sadawarte September 10, 2010 at 8:34 pm

Jayashankar,

The scheme name depends on lot of parameters including your risk appetite/time horizon/return expectation/understanding about different subproduct in MF. Could you provide some more information about the above parameters. Every MF scheme is designed to fulfill its investment objective as per the offer document. Your SIP investment objective should get align with schemes objective for better and consistent returns.

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86 Manish Chauhan September 10, 2010 at 11:35 pm
87 Jayashankar September 13, 2010 at 5:51 pm

Hi Manish
Excellent details of top funds of 2010
Thanks a lots
I really appreciate for all your informations
Jayashankar

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88 Hari September 12, 2010 at 1:58 am

Hi Manish,

Recently bumped into your site and absolutely glued to it, have loads of articles to catch up with. Have a query thoh, I plan to setup SIPs for the first time and not sure whats the best way to go abt it. I have a DMAT a/c with ICICI and blv we can setup SIPs from here. Read in your blog abt FundsIndia too. Is there any difference between these two? Can you pls point me in the right direction?

Thanks
HariTej

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89 Manish Chauhan September 12, 2010 at 11:00 am

HariTej

ICICI and FundsIndia are both brokers and help you to do SIP , however ICICI is a big fish and charges you commissions directly ,but FundsIndia does not charge you anything and provides a platform where you can do many things with your investments like setting up triggers etc.

For the first time , You can go with ICICI if you want to start things right away , if you can wait , then go for fundsindia.

Manish

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90 Hem January 6, 2011 at 7:59 pm

Thanks for the nice article. What should one opt for, when switching from a badly performing equity mutual fund to a better performing one? Should I redeem all the units at one go or should I go for SWP. Is SWP used only for debt to equity or equity to debt?

Thanks,
Hem

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91 Manish Chauhan January 6, 2011 at 8:36 pm

Hem , you can redeem from one fund and reinvest in other incase you have completed 1 yr , else SWP is good

manish

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92 Hem January 7, 2011 at 12:26 pm

Thanks, Manish for the reply.

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93 Sidharth May 1, 2011 at 11:22 am

Hi manish,

Very informative article.
Please clarify my doubts regarding……..

Considering the below mentioned factors-
Current interest rate (7-9.25%) ,market condition ,STCG,exit load ,Tax on interest of FD (form 15 G applicable /not applicable ),Tax bracket of investor.

Which one is better” FD with Auto sweep or STP ” ?

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94 Manish Chauhan May 2, 2011 at 11:28 am

Sidharth

You should ask open ended complete questions .

Regardign which is better . Both FD and Auto sweep is for different purpose , If you know when you want your money , do FD , else Sweep in

Manish

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95 PJ August 4, 2011 at 6:09 pm

Dear Manish,

Thanks for an excellent article on STP (and the one on MIP…) both have been very useful.

I would like to make use of your services. What is the best way to get in touch with you or your team?

Do let me know…

Many thanks!
PJ

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96 Manish Chauhan August 4, 2011 at 6:25 pm

Good to hear that .. I am sending you the detials on email . All you need is choose what you are interested in , schedule a call with us and take action : http://jagoinvestor.org/schedule-appointment/

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97 Irshad October 5, 2011 at 1:29 am

Thanks for sharing this information.

I want to do STP to “HDFC Top 200 Fund & HDFC Prudence Fund”. So which fund would be better to put the lumpsum for STP where exit load is less and have good performance?

please guide me. Thanks in advance.

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98 Ram January 13, 2012 at 3:56 pm

Hi Manish,

Very useful, demystified STP for me…question is, can you show us some illustration of how STP can be better than a FD?

For example, I have about 30,000 that I want to invest in the markets in MFs. By prior experience, I know that investing bulk amount in MF is equal to buying stock….cannot predict gain/loss.

But assuming favorable market conditions and putting the 30k into a (for eg) HDFC Debt Fund and then moving it monthly 2500 to HDFC Top 200 (again eg)….can you show how much would the final profit be?

Thanks in advance,

Ram

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99 Manish Chauhan January 13, 2012 at 9:34 pm

Ram

we can never predict things like this . what is your time frame ? only based on that one can give some direction . STP from debt fund to Equity will give good results but you will have to wait for 3-4 yrs for minimum

Manish

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100 Ram Mohan February 22, 2012 at 5:48 pm

Hi Manish,

For some reason I missed your answer. Time frame is not a criteria for me. I’m thinking more in terms of exit load.

So, if I invest 30K in HDFC xyz debt fund and move 3K pm to a HDFC Top 200 fund, won’t there be some exit load applicable? Also, every STP I think would be considered as a sale which results in profit/loss and tax needs to be paid on that. So considering these factors, is there some illustration that shows that this will give a better return than a regular FD?

You can consider any number of years for illustrative purposes

Thanks,

Ram

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101 Manish Chauhan February 23, 2012 at 2:57 pm

There will be exit load, but I guess (not sure) that exit load is waived off in same AMC funds . Please check this

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102 jithin February 14, 2012 at 11:40 am

Hi Manish,

Very good article. Is STP a good way to move from a badly performing fund to another fund? I invested some amount in SBI Magnum Tax Gain, which is not doing too well right now. I want to start STP to Emerging Business Fund (the lock-in period for the ELSS fund is over). Is this a good idea?

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103 Manish Chauhan February 15, 2012 at 2:08 pm

Jithin

If you are so clear that you want to get out of the fund A to B , then why STP .. just get out of it and invest in lumpsum !

Manish

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104 jithin February 18, 2012 at 1:06 pm

Manish,
My logic was that while the STP goes on, the value of the first fund would also increase. Is making a lumpsum investment in MF wise? which fund would you suggest for lumpsum?

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105 Manish Chauhan February 18, 2012 at 2:35 pm

Lumpsum investments has to be done , if you expect the markets to go up from that point, else STP is fine .

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106 Shakil March 19, 2012 at 12:50 pm

Hi,

I have Rs: 40,000 /- in SBI Magnum Multipler Plus scheme. I had started SIP in this fund last year. As this fund is not doing much, I have stopped SIP in this fund and need to move this money out and invest in some other fund. I cannot move the complete money out as there will be an exit load. Can i do STP and move this money every month in a debt / liquid fund? So later when market goes down i can again start an STP from debt to some better SBI Equity fund.

When we do STP every month from this fund, will there be STT applicable every month?

Please advice if there is any other way i can invest this money for better returns?

Thanks

Shakil

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107 Manish Chauhan March 19, 2012 at 7:45 pm

Shakil

even if you do STP , the exit loan will be there for each sell .

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108 Shakil March 20, 2012 at 9:05 am

Hi Manish,

I had started this SIP in Feb 2011. So if i start SIP next month, there will not be any exit load as first units to redeem will be from the month of Feb 2011 (1 year is completed). Please let me know if i am missing anything.

Please advice if there is any other way i can invest this money for better returns?

Thanks

Shakil

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109 Manish Chauhan March 20, 2012 at 10:48 am

Shakil

I assume you wanted to say SWP or STP , because there is no question of redeeming it when you say “SIP” .

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110 Shakil March 20, 2012 at 4:45 pm

Hi Manish,

I am sorry, I meant STP.

I had started this SIP in Feb 2011. So if i start STP next month, there will not be any exit load as first units to redeem will be from the month of Feb 2011 (1 year is completed). Please let me know if i am missing anything.

Please advice if there is any other way i can invest this money for better returns?

Thanks

Shakil

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111 Manish Chauhan March 20, 2012 at 4:49 pm

Yes , in that case there wont be any STP as it has been more than 1 yr and mostly there is no exit loan in your mutual funds like others . But where are you transferring it ?

Manish

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112 Shakil March 21, 2012 at 9:37 am

I am already in loss for this SBI fund and keeping it in equity when the market is volatile might result in more loss. As the market is volatile, I was thinking of moving this money to any good Debt / income fund. When the market is low, i can move it back to Equity.

Can you suggest some good SBI and Reliance debt / income funds?

Please advice.

Thanks
Shakil

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113 Manish Chauhan March 21, 2012 at 10:57 am

Shakil

How do you know that market is not down right now ? I would suggest not to analyse things so much and let the fund do what it is doing considering you are investing it for long term

Mansh

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114 Arunima June 20, 2012 at 4:17 pm

A precise and understandable piece of information on STP. In case I want to go for one what would be the best plan to start from HDFC Kitty moving from debt – equity or liquid – equity.

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115 Manish Chauhan June 21, 2012 at 3:10 pm

Generally debt to equity is standard

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116 Sanghmitra July 25, 2012 at 4:40 pm

Hi Manish !

I had invested in lump-sum equity-based MF 4 years back which have not grown a bit till date. Can i go for STP of same into debt-base fund? Considering market is hanging between 16-17k for pretty long time..

Regards
Sanghmitra

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117 Manish Chauhan July 26, 2012 at 10:11 pm

How did your funds perform compared to its benchmark !

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118 Sanghmitra July 26, 2012 at 11:33 pm

MFs were Reliance Power Diversified, DSP Tiger-G, SBI Midcap with amount of 20-30 k in year 2007-08. As on date, value of these MFs is still the same with marginal profit/loss of 1k.

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119 Sanghmitra July 26, 2012 at 11:35 pm

MFs were Reliance Power Diversified, DSP Tiger-G, SBI Midcap with amount of 20-30 k in year 2007-08. As on date, value of these MFs is still the same with marginal profit/loss of 1k.
These funds were recommended everywhere at that time.

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120 Manish Chauhan July 27, 2012 at 8:03 am

Where you not reviewing how these funds are doing every year ? One more thing , the markets have done very bad in last 5 yrs, but that does not mean your funds have done bad . Because they might be beaten their benchmarks still . Are these funds still on top of the list on recommendations , If not , you might want to sell them off and switch to others . But make sure you are still in equity , next 5 yrs can be very very good

Manish

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121 Sanghmitra July 29, 2012 at 3:07 pm

As they say MF should be viewed for 3-5 years, I didn’t intend to redeem them. Anyways now keeping track as to their upward movement.

Regarding STP, one agent got my STP done from HDFC prudence to HDFC Top 200. After reading ur article, i realised the transferer option is not right.
I want to do STP again , but not sure about the HDFC Debt Fund. Please suggest some.

Thanks.

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122 Manish Chauhan July 31, 2012 at 5:04 pm

But why do you want to do STP at all ? What is your requirement ?

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123 Nitin Kumar January 16, 2013 at 6:33 pm

Hi Manish/Hemant,

I have some lumpsum amount (2-3 lacs) with me, can you please suggest a good dept fund and a equity fund for doing STP?

Thank you

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124 Manish Chauhan January 18, 2013 at 10:17 am

You can look at HDFC Liquid FUnd -> HDFC prudence !

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125 Vijay January 30, 2013 at 10:31 am

Thanks for the nice article & it is really crisp to digest.

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126 Manish Chauhan January 30, 2013 at 12:55 pm

Thanks for appreciation Vijay !

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127 Deepta February 7, 2013 at 12:21 pm

Hi Manish,

Thanks for the informative article! I am still a bit confused abt the taxations with regard to STPs from liquid or debt funds. I plan to increase my investments in an existing equity fund through a lump sum investment in a liquid fund (with zero exit load) in the same fund house and start weekly STPs. Keeping in mind that these STPs will be done for a time frame of over a year, i have opted for the growth option in the liquid fund.
My question here is –
1) Do these weekly/monthly STPs attract STCGs as per my slab (30%)?
2) If yes, how do I minimize tax incurred during the STPs from the liquid fund?
3) Would a short term debt fund be better for this purpose (of course, keeping in mind exit load & lock-in periods)?

Would appreciate any feedback. Thanks!

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128 hrishig May 9, 2013 at 5:07 pm

Doing the STP from HDFC lquid fund to top 200 for more than a year . Basically the program invests more when markets are down and normal amout if they are up. So I ended up having more returns compared to normal sip. Thus go for it. It is complicated but worth

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129 Manish Chauhan May 10, 2013 at 3:10 pm

that must have happened if you setup STP of a fixed amount, correct ?

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130 hrishig May 10, 2013 at 6:10 pm

yes but the program invested more amount when nav was less and normal amout in other cases. I want to do the same for now midcap fund. but I found only reliance equity opp can have smart stp as no other fundhouse is offering this. any suggestions

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131 Manish Chauhan May 18, 2013 at 2:21 pm

I am not sre of your question

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132 Karthikeyan May 12, 2013 at 11:03 pm

I invested in HDFC Balanced for last 1 yr through SIPs (Rs. 2500 each), now I want to move my funds to a better performing fund. If I choose STP of Rs. 2500, which units will be selected for transfer? Is it from the first SIP or the last?

The only reason for his question is taxes. Since the first SIP is more than a year old, I don’t have to pay capital gains tax if I redeem it (STP is equivalent to withdrawing and investing).

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133 Manish Chauhan May 18, 2013 at 2:05 pm

It will be old units

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134 Karthikeyan May 22, 2013 at 10:06 am

Is STP allowed across fund houses? For example, I want to move my investment from HDFC Balanced to SBI Dynamic Bond, which is a debt fund. Is it possible to do this through an online broker (Ex: Sharekhan, ICICI Direct)? I tried doing this through HDFC Netbanking account, which allows me to invest in different mutual funds, but when it comes to STP, it only allows it within the same fund house.

If this is the norm, then isn’t it a serious disadvantage for mutual fund investors? Capital markets are supposed to be efficient where investors can choose investments based on their risk tolerance & capacity.

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135 Manish Chauhan May 25, 2013 at 5:31 pm

No its not allowed that way . Why would any Fund House do that ? does not make much business sense ?

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136 Hardik July 16, 2014 at 10:49 am

Hi Manish,

I had started my SIP in ElSS Fund 3 years ago for tax purpose. Now it is completed. I want to know if i start stp now can it be consider in my 80C?

Thanks ,
Hardik Parikh

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