An investor uses the Systematic Transfer Plan (STP) approach to transfer a predetermined sum of money from one investment vehicle to another (usually from a debt fund to an equity fund)
STP helps rebalance the portfolio by allotting investments from debt to equity or vice versa.
Some key components of the Systematic Investment Plan are present in STP (SIP). The source of the investment is one of the variations between STP and SIP. Money is typically transferred from a debt fund in the case of the former, and the investor’s bank account in the case of the latter. STP aids in rupee cost averaging as well because it is similar to SIP.
Investments in debt funds often generate returns up until the point at which they are converted to equity funds. Returns on debt investments are often larger than those on savings accounts, and their goal is to ensure comparatively better performance.