What is an STP in mutual funds?

Moving money in steps

An STP, or Systematic Transfer Plan, shifts a fixed amount at regular intervals from one scheme to another within the same fund house. The classic use is phasing a lump sum into equity: you park the money in a low-risk fund, then transfer a set amount each period into an equity fund, so you enter the market gradually rather than all at once.

Think of it as a SIP funded from another fund instead of from your bank account.

The tax you should expect

Here is the catch worth knowing upfront. Every transfer is a redemption from the source fund, so each one can create a capital gain, taxed by fund type and holding period, exactly like switching. The amounts are usually small per transfer, but they add up and belong in your records.

When it helps

An STP suits someone who already holds a lump sum and would rather not deploy it in one go, but also does not want it sitting idle. It brings the discipline of staggered entry without leaving the money out of the market entirely. It does not, of course, remove market risk from the destination fund.

If you have a lump sum and are weighing an STP against investing it directly, talk to us.