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What is STP?

Background

A Systematic Transfer Plan (STP) moves a fixed amount periodically from one mutual fund to another, often from a debt fund to an equity fund or vice versa.

Explanation

You might park a lump sum in a low-risk debt fund and then set up a monthly transfer into an equity fund, reducing timing risk. Near retirement, you can reverse the direction—gradually moving from equity to debt to de-risk your portfolio.

Example

After receiving a ₹10 lakh bonus at 50, you park it in a short-duration debt fund and transfer ₹50,000 every month into an equity index fund via STP, instead of investing the entire amount in equity at once.

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