STP Calculator

What is an STP Calculator?

Systematic Transfer Plan Calculator is an online tool that estimates the expected returns from an STP arrangement across two mutual fund schemes. The calculator uses five inputs the lumpsum amount in the source fund, the STP duration in months, the monthly transfer amount, the expected return from the target scheme, and the expected return from the source scheme to project the value of the source fund over time, the total amount transferred to the target fund, and the estimated total return from the arrangement.

The calculator helps investors understand how a phased transfer from a debt or liquid fund into an equity or other target fund is likely to play out over the chosen tenure, based on assumed rates of return.

All projections are based on assumed rates of return. Actual returns depend on the performance of the underlying schemes and market conditions.

What is a Systematic Transfer Plan (STP) in Mutual Funds?

A Systematic Transfer Plan is a facility offered by mutual fund houses that allows an investor to transfer a fixed amount from one scheme to another scheme within the same fund house at regular intervals. The scheme from which money is transferred is called the source scheme, and the scheme into which it is transferred is called the target scheme.

The most common use of STP is to deploy a lumpsum amount parked in a debt or liquid fund into an equity fund gradually, rather than investing the full amount in equity at a single point in time. This spreads the equity purchase across multiple dates and reduces the exposure to a single entry point in the market.

STP is distinct from SIP. In a SIP, the investor transfers money from their bank account into a mutual fund scheme. In an STP, the money moves from one existing mutual fund scheme to another within the same fund house. No fresh money is required for each instalment in an STP.

How to Use the STP Calculator

The calculator has five input fields:

1. Lumpsum Amount: Enter the initial corpus to be parked in the source fund (debt or liquid fund)
2. STP Duration: Set the duration in months over which the transfers will take place
3. STP Transfer Amount: Enter the fixed monthly amount to be transferred to the target fund
4. Expected Returns From Target Scheme: Set the assumed annual return rate for the target fund
5. Expected Returns From Source Scheme: Set the assumed annual return rate for the source fund

The calculator will display three outputs: the estimated value of the units remaining in the source fund at the end of the STP tenure, the total amount transferred to the target fund, and the total estimated return from the arrangement. These figures help investors compare different STP configurations before initiating the plan.

How STP Works Between Mutual Funds

The investor starts by investing a lumpsum in the source scheme, typically a debt or liquid mutual fund. On each transfer date, the fund house redeems units from the source scheme equal to the specified transfer amount and invests the proceeds into the target scheme.

The source fund balance reduces with each transfer as units are redeemed. However, the remaining balance in the source fund continues to earn returns at the source fund's rate until it is fully transferred or the STP tenure ends. Meanwhile, the transferred amount in the target fund accumulates and grows based on the target fund's rate of return.

Each transfer from the source scheme is treated as a redemption for tax purposes. Capital gains tax may apply on the redeemed units depending on the fund type and the holding period of those units.

STP Calculator Formula and Calculation

The STP calculator estimates two streams simultaneously:

Source Fund Value

At each transfer date, the monthly transfer amount is deducted from the source fund balance. The remaining balance continues to grow at the source fund's assumed rate of return. The formula applied to the source fund balance after each transfer is:

Balance after transfer n = (Balance after transfer n-1) x (1 + r_s/12) - T

Where r_s is the assumed annual return of the source fund and T is the monthly transfer amount.

Target Fund Value

Each transferred amount is invested in the target fund on the transfer date and grows at the target fund's assumed rate of return for the remaining tenure. The total value of the target fund is the sum of the future values of all individual transfer instalments:

Target Fund Value = Sum of [T x (1 + r_t/12)^(n - i)] for i = 1 to n

Where r_t is the assumed annual return of the target fund, n is the total number of transfer instalments, and i is the instalment number.

Total return is the sum of the residual source fund value and the target fund value, minus the initial lumpsum investment.

Benefits of Using a Systematic Transfer Plan

Phased Entry into Equity

Rather than committing a lumpsum to an equity fund at a single point in time, an STP spreads the entry across multiple dates over the chosen tenure. This reduces the risk that the entire investment enters the market at a temporarily high point.

Rupee Cost Averaging

Because the STP transfers a fixed amount at regular intervals, more units of the target fund are purchased when prices are lower and fewer units when prices are higher. Over a sufficient tenure, this may reduce the average cost per unit in the target fund compared to a single lumpsum purchase at one price point.

Idle Corpus Earning Returns

The amount parked in the source fund continues to earn returns until it is transferred. In a lumpsum-to-equity deployment scenario, the debt or liquid fund in which the money is initially parked continues to generate returns on the undeployed balance throughout the STP tenure, rather than the money sitting idle.

Disciplined Transfer Approach

An STP instruction, once registered, executes automatically at each interval without requiring the investor to make individual transfer decisions. This removes the behavioural tendency to time or delay transfers based on short-term market movements.

Types of STP in Mutual Funds

Fixed STP

The most common type. A fixed rupee amount is transferred from the source scheme to the target scheme at each interval. The transfer amount remains constant throughout the tenure.

Flex STP (Variable STP)

The transfer amount varies based on the market value of investments in the source scheme or a pre-defined formula. The investor sets a minimum transfer amount, and the actual transfer may be higher depending on the performance of the source scheme.

Swing STP (Capital Appreciation STP)

Only the capital appreciation generated in the source scheme is transferred to the target scheme at each interval. The principal amount in the source fund remains intact. This type is sometimes called a Capital Appreciation STP (CASTP). It is suitable for investors who do not want to redeem the principal from the source fund.

Availability of specific STP types varies by scheme. Investors should refer to the Scheme Information Document of the relevant source scheme for confirmation of which STP types are available.

STP vs SIP - Key Differences

When Should Investors Use STP

STP is primarily used when an investor receives or holds a lumpsum amount and wants to gradually deploy it into an equity fund rather than investing the full amount at once. Some situations where STP may be considered:

• Windfall receipt: A bonus, gratuity, inheritance, or property sale proceeds that the investor wants to deploy into equity markets gradually rather than at a single entry point
• Maturity of a fixed-term instrument: When a fixed deposit, bond, or other fixed-maturity instrument matures and the investor wants to reinvest in equity over a period rather than immediately
• Market uncertainty: When equity markets appear expensive or volatile and the investor is hesitant to commit a lumpsum but still wants to begin building equity exposure
• Systematic rebalancing: An investor who wants to progressively reduce exposure in a debt fund and increase exposure in an equity fund over a defined period

STP suitability depends on individual financial circumstances, risk appetite, and investment goals. Investors are encouraged to consult a financial advisor before initiating an STP.

Taxation of STP in Mutual Funds

Each transfer in an STP is treated as a redemption from the source scheme for tax purposes. Capital gains tax applies based on the type of source fund and the holding period of the units being redeemed. Refer to the Mutual Fund Investment Tax Reckoner for more details on the taxation of STPs.

Who Should Consider STP

STP may be suitable for investors who hold a lumpsum in a liquid or debt fund and want to gradually increase equity exposure over time. It may also suit investors who are uncomfortable with deploying a large amount into equity at a single point in time, either because of market conditions or their own investment temperament.

STP is not a product designed for investors without an existing corpus to deploy. Investors who want to start a monthly investment from their bank account should consider a SIP rather than an STP.

STP involves redemptions from the source fund at each transfer date, which creates a recurring tax event. Investors who are sensitive to short-term tax implications from each redemption should factor this in when deciding on STP tenure and transfer frequency.

How to Start an STP with HDFC Mutual Fund

An STP can be registered on an existing investment in an HDFC Mutual Fund source scheme. The source scheme must have a minimum balance of Rs. 12,000 at the time of STP enrolment. The steps are:

1. Log in to the HDFC MF investor portal or the HDFC MF mobile application
2. Navigate to the folio in which the source scheme investment is held
3. Select the STP option and choose the target scheme
4. Enter the monthly transfer amount, STP frequency, and tenure
5. Review and confirm the STP instruction

STP can also be registered by submitting a physical request form at any official point of acceptance. Once registered, the STP executes automatically on each transfer date. Modifications to the transfer amount or frequency, and cancellation of an STP, can be made through the investor portal or by submitting a written request.

STP is not available on close-ended schemes or on open-ended ELSS schemes within the mandatory three-year lock-in period.

An STP calculator is an online tool that estimates the expected returns from a Systematic Transfer Plan. It uses the initial lumpsum in the source fund, the monthly transfer amount, the STP duration, and the expected return rates of both the source and target schemes to project the value of the source fund, the total amount transferred, and the estimated total return at the end of the tenure.

In an STP, the investor parks a lumpsum in a source scheme and instructs the fund house to transfer a fixed amount to a target scheme at regular intervals. The source fund balance reduces with each transfer as units are redeemed, but the remaining balance continues to earn returns at the source fund's rate. The transferred amount accumulates in the target fund and grows at the target fund's rate.

In a SIP, money moves from the investor's bank account to a mutual fund scheme at regular intervals, and fresh money is required for each instalment. In an STP, money moves from one mutual fund scheme to another within the same fund house. No fresh bank debit occurs for each STP instalment, the source fund balance funds all transfers. 

STP is primarily used when an investor holds a lumpsum, received as a bonus, gratuity, maturity proceed, or inheritance, and wants to deploy it into equity gradually rather than at a single point. It is also used when markets appear volatile and a phased entry is preferred over a single lumpsum investment in equity.

The main types are Fixed STP, where a fixed amount is transferred each interval; Flex STP or Variable STP, where the transfer amount varies based on a formula; and Swing STP or Capital Appreciation STP, where only the appreciation generated in the source fund is transferred, leaving the principal intact. Availability of specific types depends on the scheme.

Yes. Each transfer in an STP is treated as a redemption from the source scheme and is subject to capital gains tax. The applicable tax depends on the type of source fund and the holding period of the units redeemed. For debt funds, gains are taxed at the applicable income slab rate regardless of holding period. For equity funds, LTCG tax applies for units held over 12 months. 

The minimum balance in the source scheme at the time of STP enrolment is Rs. 12,000. The minimum transfer amount per instalment is typically Rs. 1,000 for monthly STP, though this may vary by scheme. The minimum number of instalments depends on the frequency and transfer amount: for monthly Fixed STP and Capital Appreciation STP, the minimum is 6 instalments.

An STP reduces concentration risk at a single entry point by spreading the equity investment across multiple dates. Because the same transfer amount buys more units when prices are lower and fewer units when prices are higher, it applies the principle of rupee cost averaging to the equity purchase. However, STP does not eliminate market risk; the target fund's value is still subject to market fluctuations.

Yes. An STP can be modified or cancelled by submitting a request through the HDFC Mutual Fund investor portal, the mobile application, or at an official point of acceptance. Modifications are subject to processing timelines. A cancellation request generally needs to be submitted a few business days before the next scheduled transfer date.

Yes. The most common STP arrangement is a transfer from a debt or liquid fund (source scheme) to an equity fund (target scheme). Both schemes must be within the same fund house. The source and target schemes must offer the STP facility. Investors should confirm availability for specific scheme combinations in the Scheme Information Document.

STP is designed specifically for lumpsum investments. The investor parks a large amount in a source fund upfront and allows the STP to systematically deploy it into the target fund over the chosen tenure. Investors who do not have an existing lumpsum to deploy would typically use a SIP rather than an STP.

If the source fund balance falls below the minimum required to execute a transfer, the STP may be discontinued automatically. Specifically, if the source fund balance is insufficient to cover the next scheduled transfer amount, the transfer for that instalment may not go through and the STP may be terminated. The investor would receive a communication from the fund house in such an event.