STP calculator

What an STP is

A Systematic Transfer Plan is a standing instruction with a mutual fund house to redeem a fixed rupee amount from one scheme (the source) and use the proceeds to buy units in another scheme from the same fund house (the target) on a chosen day each month. The source balance keeps earning until its units are redeemed; the target balance earns from the day each tranche buys units. One common use is to park a rupee amount in a lower-volatility scheme and transfer it in parts into a higher-return category, so that only a part is exposed to any single day's prices. This page is arithmetic on that idea at two steady rates and does not suggest a scheme pair.

The convention this page uses

Each month runs in a fixed order. First, the source balance earns one month of return at the source rate divided by 12. Then the monthly transfer amount is redeemed from the source, capped at whatever is left in it. The redeemed amount buys units in the target and the target balance earns one month of return at the target rate divided by 12. The next month starts with these new balances.

If the source empties before the term ends, the transfers stop and the target keeps compounding alone until the term is up. The result holds no exit load, no expense-ratio drag and no scheme switch inside the fund house that is faster than one month. The monthly rate is the annual rate divided by 12, the same convention used on the SIP calculator, so the two pages agree in method.

Worked example you can check

Take ₹5,00,000 in the source at an assumed 6 per cent, a monthly transfer of ₹25,000, and an assumed 12 per cent in the target, run for 2 years. The monthly source rate is 0.005 and the monthly target rate is 0.01. On month one, the source grows to ₹5,02,500, ₹25,000 is pulled to the target (source becomes ₹4,77,500) and the target grows to ₹25,250. Carry the arithmetic forward every month.

The source empties around month 22, so the target compounds on its own for the last two months. The two funds hold about ₹6,07,790 together at the end of year two.

STP against two one-shot alternatives

Two alternatives bracket the STP. Leaving the whole ₹5,00,000 in the source for 2 years at 6 per cent gives about ₹5,63,580. Moving the whole ₹5,00,000 into the target on day one at 12 per cent gives about ₹6,34,867. The STP lands between them at about ₹6,07,790.

This is a consequence of the rates and the convention alone. The STP underperforms the one-shot target move when the target rate is above the source rate, because the STP money reaches the higher-return leg later. The STP outperforms the leave-in-source case when the target rate is above the source rate. Reverse the two rates and the ordering flips. A steady-rate comparison always favours the higher rate for earlier money; the real-world question is whether any of these rates will hold through the term, which no calculator can answer.

Each transfer is a taxable event

A transfer is not a switch inside a cell of the same fund. It is a redemption of source-fund units plus a fresh purchase of target-fund units, both on the same day. Capital gains tax on each redemption is computed per unit on a First-In First-Out basis, in the type of scheme the source units sit in.

For equity-oriented source funds (65 per cent or more domestic equity), units held above 12 months are long-term, taxed at 12.5 per cent above a combined yearly exemption of ₹1,25,000 on listed equity and equity funds; units held 12 months or less are short-term at 20 per cent. If the source is a debt scheme, every unit bought on or after 1 April 2023 is taxed at the investor's slab rate without indexation, no matter how long it was held. The 15 per cent cap on surcharge for capital gains income, and health and education cess at 4 per cent on tax plus surcharge, also apply. The scheme may also levy an exit load on units sold inside its no-load window, reducing the amount that reaches the target. Place these figures with a qualified chartered accountant before you use the output for a filing.

Rates set the whole result

Two inputs move the answer more than any other: the source rate and the target rate. Hold the other inputs at the worked example and change one rate at a time. If the source rate rises from 6 to 8 per cent, the two-year total rises because the source keeps a bit more of its own compounding before it empties. If the target rate rises from 12 to 14 per cent, the two-year total rises faster still, because the money pulled into the target earns at the higher rate for most of the term.

The sign of the rate gap matters more than the gap itself. A target rate under the source rate flips the STP into a drag against leaving the money in the source. Both rates are assumptions you supply, not promises of the schemes. Scheme fact sheets report CAGR of past periods; those are statements about history and carry no promise about the next 24 months.

What this calculator leaves out

• The expense ratio of each scheme, which reduces the return actually credited to its units. Direct plans cost less than regular plans.
• Any exit load the source scheme levies on a redemption inside its no-load period.
• The brokerage, STT or stamp duty that applies to listed securities. STP is a fund-house transfer and does not go through an exchange.
• Changes in the two rates from month to month. The arithmetic runs at one steady source rate and one steady target rate.
• Your own surcharge, cess and other income heads. The tax section above is a sketch.

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