How to use the STP Calculator
- 1
Enter the lumpsum you will place in the debt fund.
- 2
Enter the fixed amount to transfer into the equity fund every month.
- 3
Set assumed returns for the debt fund and the equity fund.
- 4
Choose the holding period and compare the balance in each fund and the total.
The formula
Each month: Debt = Debt × (1 + rd) − T; Equity = Equity × (1 + re) + Trd and re are the monthly rates for the debt and equity funds (annual return ÷ 12 ÷ 100) and T is the monthly transfer. Both funds grow for the month first, then T moves across; once the debt fund runs low, only what is left is transferred.
Worked example
Put ₹12 lakh in a debt fund at an assumed 7% and transfer ₹1 lakh a month into an equity fund at an assumed 12%. After 12 months the illustration shows about ₹47,490 left in debt and about ₹12.68 lakh in equity, a total of roughly ₹13.16 lakh.
Tips
- Choose the transfer period based on the amount: many families spread a large sum over 6 to 12 months.
- Use a liquid or low-duration debt category as the source fund, since its job is to hold money steadily.
- Remember each transfer is a redemption from the debt fund, so check exit load and tax before you start.
Frequently asked questions
What is an STP in mutual funds?
An STP is a standing instruction to move a fixed amount from one scheme to another of the same fund house at regular intervals. It is commonly used to shift money from a debt fund to an equity fund gradually, so your equity purchases are spread over several months.
Is STP better than investing a lumpsum directly in equity?
An STP reduces the risk of investing everything just before a market fall, but it can also miss gains if markets rise steadily. It does not guarantee a better result. It suits investors who want to reduce timing regret when deploying a large amount.
Can I do an STP between two different fund houses?
No, an STP works only between schemes of the same fund house. To move money from one fund house to another, you redeem from the first and invest in the second, which are two separate transactions with their own tax and exit load considerations.
Is tax charged on every STP transfer?
Yes, each transfer is treated as a redemption from the source fund, so any gain on those units is taxable. Debt fund units bought on or after 1 April 2023 are taxed at your slab rate. The gain on each small transfer is usually modest, but confirm with your tax professional.