STP in mutual funds stands for Systematic Transfer Plan. It is a type of investment strategy in which an investor transfers funds from one mutual fund scheme to another regularly. The primary objective of STP is to provide investors with market advantage by changing to securities when they offer higher returns. It also safeguards the interests of an investor during market fluctuations, to minimize the damages incurred.

Here are some key features of STP in mutual funds:

• STP helps in rebalancing the portfolio by allotting investments from debt to equity or vice versa.
• STP is similar to SIP (Systematic Investment Plan) in that it helps in Rupee Cost Averaging.
• STP allows investors to earn higher returns on their investments by shifting to a more profitable venture during market swings.
• During times of high volatility in the stock market, investors can transfer their funds via an STP into relatively safer investment schemes such as debt funds and money market instruments.
• STP can help investors lower their average costs incurred on investments by following the technique of investing in funds when their average price is low and selling them when their market value increases.

STP is a beneficial tool to average out investments over a specific period. Whether one should invest in STP or not should be decided based on three factors which are the overall market view, risk profile of the investor, and current allocation to equities of the investor.