2nd S..Systematic Transfer Plan

Most of the people wants to invest lump sum amount in mutual funds (Like Bonus, Arrears in salary, or any other income received from other sources..)but they are scared to put all of it in one go because the markets are at an all-time high.so to reduce the risk involved in investing there is 1 method or strategy which is known as Systematic Transfer Plan .So Let’s see

What is STP?

STP is a variant of SIP. STP is essentially transferring investment from one asset or asset type into another asset or asset type. In STP, a fund house allows investors to invest a lump sum amount in 0ne scheme (Debt Mf) and transfer regularly a pre-defined amount into another scheme.(Equity or Balance Mf) The transfer happens gradually over a period.

How STP Works?

Suppose you want to invest 1 Lakh in Equity Mf. Your 1st step will be

  • Choose the liquid or ultra-short term mutual fund.(If its other debt fund make sure there is no exit load )
  • Choose the Equity or Balance Mutual Fund which you want to transfer money.
  • Decide the amount to be transferred and frequency of the transfer (Daily, weekly ,monthly or quarterly )

For example you can decide to transfer 10000 every month on 10th of every month for 10 months or if 5000 than 20 months.

Benefits of STP

  • STP helps to keep a balance of Risk & Returns
  • Money invested in liquid fund earns interest till the time it is transferred to equity fund. The returns of liquid fund is usually higher than saving bank account.
  • Your money is invested in liquid fund this mean you can sell it at any time if you want. Hence it works like a Emergency Fund.
  • Since it is similar to Systematic Investment Plan (SIP),STP also helps in averaging out the cost of investors by purchasing fewer units at a higher NAV and more at a lower price.

Types Of STP

Fixed STP: – In Fixed STP, amount of transfer (from one mutual fund to other) is fixed.

Flexi STP: – Under Flexi STP amount of transfer is variable. The fixed amount will be minimum amount and variable amount depends on volatility in market. For E.g If Nav of the fund decrease you can invest more amount and if NAV of the fund increase you can invest less amount.

Capital Appreciation:-Under this type, the investor takes the profit part out of one investment and invest in other.

Key Points to remember.

  • Typically, a minimum of 6 such transfers are to be agreed n by investors in STP.
  • STP attracts short term capital gain tax because every transfer is considered as redemption in the liquid mutual fund. If debt funds are sold before 3 years, the gains are treated as short term capital gains and taxed according to income tax slab applicable to investor.
  • You can bring down tax liability marginally by opting for the dividend reinvestment option in the liquid mutual fund. Dividends are tax free for investors but mutual fund pay a dividend distribution tax of 28.84% on dividend declared.
  • If you want to invest in ELSS schemes and have lump sum money ,better put it in a liquid mutual fund and do


Next Article will be on 3rd S…Systematic Withdrawal Plan (SWP)


Do you know 3s of Financial Planning?

Today I want to explain 3 very common terms used in mutual fund investing which is also called 3 S of Financial Planning.

  1. Systematic Investment Plan (SIP)
  2. Systematic Transfer Plan (STP)
  3. Systematic Withdrawal Plan (SWP)

These are methods of Systematic investing and withdrawal in mutual funds. While most people know what is SIP is, majority are not aware of what STP & SWP is. These are important element of financial planning. So let’s understands how these 3 S works.

Systematic Investment Plan (SIP) 

What is SIP & How it works?

This option is similar to like Recurring Deposit in bank or post office.. Under this option you can invest fixed amount in mutual funds on particular date of the month. You can fix the amount according to your financial goals as well as you can select date also and invest it regularly. When you invest for the first time in mutual funds you would get folio number like your bank account number. Your money is auto debited (ECS) from bank account or you can give postdated cheques .After purchase in particular scheme you will get certain number of units based on the ongoing market rate which is called NAV of the day. Every time you invest money, additional units of the schemes added to your account. Whenever you make an investment in mutual fund scheme, the fund house has to send you an account statement providing details of holding.

Advantage of Systematic Investment Plan

  • It help to develop saving habits.
  • One can start investing in SIP with very low amount of Rs.500 or Rs. 1000
  • While Starting SIP, you have to choose date and no of installments-you can choose whatever is convenient for you.
  • There is no fixed tenor for running SIP ,Once the SIP tenure is fixed ,it can stopped in between or could be continued even after the tenor by placing the request with respective mutual fund company.
  • Full and Partial withdrawal is possible during or after the SIP tenor .Only ELSS mutual funds have 3 years lock in period and there is some exit load in some mutual fund schemes depending upon type of the scheme.
  • Simple, Convenient and easy to monitor. You do not have to take time from your schedule to make your investments. With a completed application form, one can just submit post-dated cheques or avail the Easy Pay (auto debit) ** facility and relax. You can monitor your progress of investment through periodic statement of accounts.
  • Rupee cost averaging: Investors investing fixed amount of money every month towards any investment vehicle allow them to buy more units or stocks when the price of the units (investment) is lower. This reduces the average cost of purchasing of the financial asset over time.Considaring a long term investment approach ,rupee cost averaging can even out any market ups and down in the long term, allowing investor to gain maximum benefits on his on her investments over time.


Month Investment Amount             NAV     No.Of Units
JAN           2000             15          133.33
FEB           2000             13          153.84
MAR           2000             16          125.00
APR           2000             14          142.85
MAY           2000             17          117.64
JUNE           2000             19          105.26

Total Units                                                                                                                        777.92

From above table we can see at every market correction an investor would end up buying more number of units. When the unit price goes up, he tends to gain.

What are documents required for SIP investment?

You need to provide KYC documents along with SIP application form .KYC documents include PAN card, address proof and identity proof.


 Mutual Fund Investments are subject to market risk ,read all scheme related documents carefully.  

Next Article will be on 2nd S …Systematic Transfer Plan

All about Financial Planning In India


Financial Decisions are critical decisions, which decide how monetarily comfortable we stay in life. Poorly planned financial decisions can cause, at best, great anxiety and at worst lead to insolvency, whereas well thought out decisions can lead to prosperous lifestyle.

Becoming a successful investor doesn’t happen by magic or in a day – it happens by setting goals and working to achieve them. The question then is how to go to about it. How to achieve the financial goals in life? What should be the 1st step towards it? How should I plan the available resources to achieve the goals?

Initially people don’t realize they need of financial planner or nobody knows there is thing (concept) like of financial planning. For some people financial planning simply means short term Cash Flow Planning or buying an insurance or investing in few mutual funds or fixed deposit or for some it may be restricted to Tax Planning. So what is financial planning & how it is helpful to achieve your financial goals? Let’s understand……

What is Financial Planning?

Financial Planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, savings for your child’s education, planning for your retirement or estate planning. In other words financial planning is not just investing, it is process which helps you to manage your finances in such a way that you link it to your life goals.

Who is Financial Planner?

As discussed earlier some people feels their insurance agent or mutual fund advisor is financial planner & they blindly trust & buy product suggested by them for some their neighbor or friend Or in some cases people want product (Mutual fund & Insurance ) just because their friend or neighbor buy or invested in that product. They don’t even bother to understand the product (mutual fund or insurance) which is suitable for him because his risk appetite, time horizon or goals are different from his friend.

A financial planner is someone who uses the Financial Planning process to help you figure out how to meet your life goals .The planner can take a big picture view of your financial situations and make financial planning recommendations that are suitable for you. Planner can look at all your needs including budgeting and saving, taxes, investments, insurance and retirement planning. Or, the Planner may work with you on a single financial issue but within the context of your overall situation. This big picture approach to your financial goals sets the Planner apart from other Financial Advisors, who may have been trained to focus on a particular area of your financial life.   — Source FPSB
In India Financial Planning Standard Board India is the authorized board to award CFP certification to an individual. CFP Is exactly like how doctors or CAs will get after going through desired skill in their respective filed. This process of awarding certificate involves education, examination, experience and ethics set by the board. Also there exists the condition that one must have a continuing education requirement. This makes a professional to be up to date in knowledge about personal finance.

Benefits of Financial Planning:

There are many advantages of following structured financial planning process which can have far reaching positive effects on one’s life. Creating financial plan helps you see big picture and set a short term and long term life goals, a crucial step in mapping your financial future.

It Provides direction and meaning to your financial decisions:- Financial Planning allows you understand how each financial decision you make affects other areas of your finances. It help you to understand Where are you today ,that is your current financial position ,where you want to be tomorrow ,that is finances linked to your goals and what must do to get there, that is asset allocation and investment strategy.

Family Security: – Providing for your family’s financial security is an important part of financial planning process. Financial Planning helps to provide protection for you and your family by having right insurance in place if something goes wrong.

Helps in Tax Savings:- Financial planning helps you to invest smartly as certain funds provide dual benefit. One, getting good returns & secondly, helping you in savings taxes where you can save up to Rs 1.5 lakh under section 80C of the I-T Act. Various options like ELSS mutual funds, PPF, tax-free bonds, etc provide both tax benefit and capital appreciation.

Standard of Living: The savings created from good planning can prove beneficial in difficult times. For example, you can make sure there is enough insurance coverage to replace any lost income should a family bread winner become unable to work.

Discipline in managing money: Financial planning brings in discipline. Also, there are subtle behavioural changes when you undergo financial planning. For example, when you run a systematic investment plan (SIP), your expenses are automatically curtailed and this goes t owards investments. Similarly, when you do financial planning, you become aware if your lifestyle expenses are above or below what you can afford. If it is the former, you can take necessary steps to cut back on unnecessary expenses.

6 Steps of Financial Planning

Financial Planning is a comprehensive and ongoing process that can help you to achieve your financial goals. Financial Planning Standard Board India has developed 6 steps that is widely use by Financial Advisor when meeting with client. The FPSB develops education programs for financial planners.

Below the six-step process is set out in brief.

Establish & define the relationship with client.

This is where the financial advisor will introduce him or herself and typically explains about what financial planning is, its process, information about company and services provided as well as fees & charges .Advisor may also ask questions like your family background as well as check your knowledge about financial products & market.

The purpose of establishing the goal or relationship is to form the foundation or purpose of planning itself–to begin the financial journey with the clarification of a financial destination.

Gather the client’s relative data.

During the second step of the process, the advisor will collect the client’s qualitative as well as quantitative information.

Qualitative provides general information like your financial goals, lifestyle, family’s medical history or health, and investment-risk tolerance level.

Quantitative provide basic but specific identifying information concerning details of current financial status. Examples include info about your total family income, expenses, investments, insurance coverage’s, and present liabilities or other obligations.

Analyze the Client’s data:

In this step financial planner analyzed all the information collected in 2nd step. He will analyses clients current financial status, his investment, insurance policies, and liabilities to determine the strength and weaknesses. He also analysis the clients objectives, needs and priorities.

Develop the Financial Planning recommendations and present them to the client.

The financial planner offers financial planning recommendations that address the client’s goals, based on the information the client provided. The planner reviews the recommendations with client to allow the client to make informed decision. The planner listens to clients concerns and revises recommendations as appropriate.

Implement the Financial Planning Recommendation.

Once client agreed to recommendation, next step is put plan into action. Based on the scope of the engagement, the financial planner identifies and presents appropriate products and services that are consistent with the financial planning recommendations accepted by client. Financial Planner also guides you what needs to be done, complete any relevant paperwork. Also if needs to be coordinate with meeting with other specialist.

Review the client’s situation.

Financial Planning is ongoing process.  The client and financial planner agree upon terms of reviewing and revaluating the client’s situation, including goals risk profile, lifestyle and other relevant changes. If there is any change the financial planner adjust recommendations as needed.