Prajna Capital

Mutual Funds: Basics of systematic transfer plan (STP)

Posted: 15 Nov 2011 04:08 AM PST

ONE of the concepts in the mutual fund space that results in a lot of confusion is the systematic transfer plan (STP). This is similar to a systematic investment plan (SIP) with the difference that the amount is being transferred from a debt fund usually a liquid fund to an equity oriented fund. It is meant to tackle a situation where the investor has a lump sum available and they want to invest this in a regular manner.

There are some common mistakes that are often done in this process and here is a look at some of them.

Debt fund selection: The most common mistake is done with respect to the selection of the debt fund wherein this is not a liquid or a money market fund but this is some other category of mutual fund.

The problem here is that if there is a wrong selection there could be a situation where the initial investment of the investor can actually lose money and that is not something that the individual will want. The debt fund investment has to be protected from a fall in value, as there could be a situation where the rise in the interest rates can lead to a reduction in the investment value.

In some cases the investment is done directly to equity-oriented fund and then a further transfer is made to another equity-oriented fund and this actually cancels the entire benefit of the investment. The lump sum investment should not be in an equity fund as this can lead to a large loss of value.

Unnecessary transfer: Another example where the STP process is misunderstood is when there is an unnecessary transfer that is done. This hap pens because of the fact that once the basic requirement of the investment has been completed often there is an additional transfer that takes place. This is done because the investor wants to show that they are doing something in the investment process, which is not actually necessary.

An example of this is where the investor actually transfers amount from an equity fund to the debt fund after having completed the reverse process. This is the reason why the investor has to check whether there is any requirement for a regular transfer to take place.
Right order: There is a specific order and situation under which the entire STP process takes place. The first is the presence of the lump sum amount that is available for investment followed by the investment in a debt-oriented fund and this is then completed by the investment in an equity-oriented fund.

If this sequence is not followed then this process will not result in a STP investment. Often there is a violation of the process because one of the conditions required for this process is not present and this makes the entire investment ineligible for the actual benefit that the process provides. The manner in which the investor is able to tackle this situation is important and hence they will have to work hard in order to match the needs and requirements.

Awareness: It is time that the investor is aware of the entire situation so that there is no wrong advice that is given to them.

In most cases when the order of the investment is disrupted it is due to the fact that the investor is not aware of how the entire situation works and is clueless as to why this is being done. The end result is that some people might take advantage at the expense of the investor.

The other point is that the investor must also know how to tackle the situation when they are advised about an investment that goes against this principal. If they are aware then they can make the necessary arguments that will help them tackle the situation and avoid a wrong investment.

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What are all the Service Requests involved in Mutual Fund?

Posted: 14 Nov 2011 07:28 PM PST

Bank Account Registration:

If you change your bank, you can register the new bank account by filling up the 'bank account registration form'. You can also request for deletion of details of the existing bank account or register multiple accounts, for your investments in your folio number.

Consolidation of Folios:

Many of us invest in mutual funds without mentioning our old folio number. This results in creation of multiple folios. In the end, it is too confusing to hold many folios, that too in the same mutual fund. Hence, there is a need to consolidate these folios. You can fill up the 'folios consolidation form'. This will bring all yours investments under a single folio, making it simpler for you to manage and track them.

Updation of Address/Contact Details:

Many of us have been investing over the years, but have not provided details like our e-mail address or mobile numbers to the mutual fund house. Registering these details helps faster flow of communication. So as soon as a transaction takes place in your account, you are alerted by an SMS or e-mail. An account statement is sent to you by email. These services are free.

Change of Name/Signature:

Many a time post marriage, there is a name change, which you need to effect in your investments also. All you need to do is fill up the form concerned and submit it with a copy of the gazette or marriage certificate specifying the name change. A banker must attest the document. You also need signatures of all the holders in the folio. Once this is submitted to the mutual fund, the name change will be effected.

Cheque Reissuance:

If you have misplaced the cheque for your dividend or repayment, you can request a new one by with the cheque re-issuance form. The request has to be signed by all holders.

Nomination Form:

If you have not appointed a nominee, you can appoint one. You can even change the nominee you have already appointed. If you have one nominee, you can also add another nominee and make a respective percentage allocation in the ratio that suits you.