STP Calculator

Suppose you have a lumpsum invested in a debt mutual fund and want to gradually move it into an equity fund instead of investing the entire amount at once. A Systematic Transfer Plan, or STP, can help you do this.

An STP transfers a predetermined amount from one mutual fund scheme to another at regular intervals. Both schemes must belong to the same mutual fund company. Depending on the facility offered, transfers may be weekly, monthly, quarterly or at another available frequency.

STPs are commonly used to move money from debt to equity, but they may also be used between other eligible schemes. An STP calculator can help you estimate how the transfer amount, tenure and assumed returns of both schemes may affect the projected outcome.

Some mutual fund companies offer different forms of STP. Their availability and terms may vary:

• Fixed STP: A predetermined amount is transferred from the source scheme to the target scheme at regular intervals.
• Flexible STP: The transfer amount may vary according to the calculation method and terms of the facility.
• Capital appreciation STP: Any appreciation in the source scheme, if available, is transferred to the target scheme, subject to the facility’s terms.

An online STP calculator estimates how regular transfers may affect the value of the source and target schemes. The calculator uses inputs such as the initial amount in the source scheme, monthly transfer amount, STP tenure and expected returns from both schemes.

• Based on these assumptions, it estimates:
• Total potential STP earnings
• Amount remaining in the source scheme
• Total amount transferred
• Potential future value of the target scheme

You can adjust the inputs to compare different scenarios. However, the results are illustrative estimates, not forecasts, because actual mutual fund returns and NAVs can fluctuate.

The calculator is an aid, not a prediction tool. It may provide only an indicative picture.

The Bajaj AMC STP calculator requires five basic inputs:

1. Lumpsum amount in the source scheme: Enter the amount initially invested in the source scheme.
2. Tenure of STP investment: Select the period over which you want the calculator to model the transfers.
3. Monthly STP amount: Enter the amount you want to transfer to the target scheme each month.
4. Expected return from the target scheme: Enter the assumed annual return from the scheme receiving the transfers.
5. Expected return from the source scheme: Enter the assumed annual return from the scheme from which the money will be transferred.

Once you enter these details, the calculator displays the projected outcome along with a month-by-month breakdown. You can try different transfer amounts, tenures and assumed returns to compare how each change may affect the estimates.

Here are some ways an STP calculator can help with planning:

Simplifies the calculations

Every transfer has a different period over which it may potentially earn returns. The calculator applies the assumed rates of return to these changing balances, making the calculation easier to understand.

Supports goal planning

The calculator can help you assess how the transfer amount and tenure may fit the corpus available in the source scheme and the amount you are working towards. The result is a planning estimate rather than a personalised return projection.

Makes scenarios easier to compare

You can change the transfer amount, tenure or assumed returns to see how each input affects the projected outcome. This can help you compare different STP structures before setting one up.

An STP may be useful when you want to move money between two schemes gradually rather than on a single date. However, it does not remove market risk or guarantee that it will outperform a lumpsum investment.

Some potential uses include:

• Rupee-cost averaging: A fixed transfer buys more units of the target scheme when its NAV is lower and fewer units when its NAV is higher. This may spread the acquisition cost across different market levels, but it does not guarantee profits or protect against losses.
• Disciplined transfers: Once registered, scheduled transfers generally take place at the selected frequency, subject to sufficient units in the source scheme and the applicable facility terms.
• Gradual portfolio reallocation: Some investors may use an STP to gradually move between asset classes in line with their planned asset allocation. The amount remaining in the source scheme stays invested and continues to be exposed to that scheme’s risks and potential returns.

An SIP and an STP both involve regular investments, but the source of the money is different.

• SIP: A Systematic Investment Plan usually invests fresh money from your bank account into a mutual fund scheme at regular intervals.
• STP: A Systematic Transfer Plan redeems an amount from one mutual fund scheme and invests it in another eligible scheme of the same mutual fund company. You therefore need an existing investment in the source scheme before starting an STP.

Each STP instalment is treated as a redemption from the source scheme and a fresh investment in the target scheme. Tax and exit load may apply to the redemption. Neither an SIP nor an STP eliminates market risk.

Before setting up a Systematic Transfer Plan, consider the following:

• Purpose of the transfer: Identify why you want to move the money and how the STP fits your financial goal and investment horizon.
• Choice of schemes: Assess whether the source and target schemes align with your risk appetite, asset allocation and time horizon.
• Transfer amount and tenure: Check whether the source scheme has enough money to support the planned transfers for the selected period.
• Transfer frequency: Mutual fund companies may offer different transfer frequencies. Consider a frequency that aligns with the planned transition period instead of basing it only on short-term market movements.
• Scheme-specific conditions: Check the minimum transfer amount, minimum number of instalments and eligible source-target scheme combinations.
• Tax and exit load: Each transfer involves redeeming units from the source scheme. Capital gains tax and an exit load may apply.
• Available balance: Insufficient units or balance in the source scheme may cause a scheduled transfer to fail.

An STP spreads transfers across different dates, but it does not protect the source or target investment from market-related risks.