What It Means
An STP (Systematic Transfer Plan) automatically moves a fixed amount from one mutual fund scheme into another, at regular intervals, within the same fund house (AMC). The most common use is parking a lump sum in a low-risk debt or liquid fund and transferring it gradually into an equity fund, rather than putting the whole amount into equity on a single day.
How It Works
Each transfer is technically a redemption from the source fund and a fresh purchase in the target fund, both happening on the same day at that day's NAVs, and each leg is taxed accordingly, with the redemption leg treated as a capital gain or loss. An STP achieves the same rupee cost averaging effect as a SIP, but starting from money you already have in hand rather than money you're setting aside from income.