Systematic Transfer Plans (STPs) are a way in which one can invest in equity oriented funds and this is an alternative that people can use as compared to a normal Systematic Investment Plan (SIP). The manner in which these plans should be used and when they make sense for an investor are important factors that should guide the decision making process. There are several points that one can check off when they are undertaking the process. Here are some of the things that need to be kept in mind when the STP is being used.Presence of lumpsum
There has to be a presence of a lumpsum available with the individual when they want to start an STP. This is the most basic factor that needs to be taken into consideration because if this is not there then the simple process of investing regular amounts would become a SIP. It is the presence of a large amount that makes the change necessary in the entire investment and this is where the need for the STP arises. The lumpsum should be a slightly large figure that cannot be invested in a single shot and not a figure that can be accommodated in a single investment.Debt fund
The investment that is made by the investor of the entire lumpsum is in a debt fund even though the final target is an equity fund. This is the basis for the effective way in which the lumpsum is directed in an appropriate manner. The confusion might arise about the entry of the debt fund but this is necessary to have safety for the initial amount that cannot be invested in a single shot and hence has to be directed through the debt fund. The debt fund should be a liquid fund as there is not likely to be a loss for the investor here.Regular monthly flow
The second stage of the transaction is where the regularity of the flow comes in and this is where the investor transfers amount from the debt fund to the equity fund. The equity fund is the final destination and this is the main target of the investment. The flow is usually on a monthly basis and this now makes the process easily understandable for the investor. Even if the amount here is slightly large it is not a problem as it is still getting spread over a longer time period.Period
One of the most crucial aspect of the STP is that the time period chosen for the continuation of the process should not be very small. Thus a STP of just a few months might not be a good idea bit this should ideally be for at least a year as this would allow for enough time for the amount to be spread out. The whole idea of the process is to spread the risk over a period of time and this is the reason why the entire transaction is set up in this particular manner. Variation
There might be some variations that are introduced for the STP wherein the amounts that are transferred would change depending upon some other conditions. These are meant to ensure that there is a better way in which the transfer is made but then this violates the conditions for the basic STP. These variations might look good in hindsight but in the initial time period one does not know whether they will actually deliver and it could be that they do not give the required results. The variations are useful for those who want to try out new things but for a small investor it is better to stick to the basics.