InvestorQ : Can I use a Systematic transfer plan(STP) to switch from regular to direct mutual funds?
Kunal Verma made post

Can I use a Systematic transfer plan(STP) to switch from regular to direct mutual funds?

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Deepali Khupte answered.
4 months ago
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Yes, absolutely. A systematic transfer plan (STP) transfers a fixed amount of money from one mutual fund to another. However, you should note that STPs can only transfer money between two mutual fund schemes of the same Asset Management Company (AMC).

For example, an STP cannot transfer money each month between Axis Liquid Fund and Motilal Oswal Long Term Equity Fund. You should also be aware of the tax treatment for such transfers. The applicable tax on an STP depends on two factors – the type of fund you are transferring from and the length of your holding period. This is because an STP transfer is treated as a redemption and taxed accordingly.

In the case of equity funds, transfers within 1 year of purchase will be taxed under the Short-Term Capital Gains Tax (STCG) at 15%. Transfers after 1 year, more than Rs 1 lakh will be taxed under the Long-Term Capital Gains Tax (LTCG) at 10%. In the case of debt funds, transfers within 3 years of purchase are taxed as per your slab, and transfers after 3 years are taxed at 20% after giving you the benefit of indexation. Indexation reduces your tax liability to account for inflation. This is why typically, most STPs are from liquid funds and hence taxed at your slab rate.


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