What is STP (Systematic Transfer Plan)?

A systematic transfer plan (or STP) gives you the ability to switch your investments from one mutual fund system to another. This is possible for plans of the same checkout. If you break it down, STP is actually a different form of SIP. Instead of transferring money from your bank account to the mutual fund, you regularly transfer money from one fund to another. 

How STP works

To start a STP, you must select two funds: The fund from which the money is transferred, the fund to which the money is  transferred later can choose whether you want  to transfer transactions monthly or quarterly.Fixed STP - You can transfer a fixed amount from one fund to another. Capital Appreciation Plan: You can only move profits from one fund to another. 

Flexible Plan: 

You can transfer a variable amount. This includes a fixed amount that represents the minimum amount to be transferred and a variable amount that depends on market volatility. STP can be a good investment strategy when you need to invest a large amount  in stocks but want to do it gradually.So, instead of putting a lump sum in an equity fund, you can invest the amount first in a liquid fund.This can be a safer option as liquid funds come with low risk.Following this, you can transfer a fixed amount into the equity fund just like a SIP.Here, you can earn potential returns on the liquid fund as well.