Q1. I am a self-employed person and cannot invest every month. How does systematic transfer plan work? \u2013 Gautam Singh Under Systematic Transfer Plan (STP), an investor gives consent to the mutual fund house to transfer certain amount\/ units from one scheme to another, of the same mutual fund house at regular time intervals. There are three types of STPs: Fixed STP\u2014wherein a fixed amount of money is transferred; Capital Appreciation STP\u2014wherein only the profit from one scheme is transferred; and Flexible STP\u2014wherein investor can increase or decrease the amount that can be transferred, subject to a minimum fixed amount that needs to be transferred at pre-determined intervals. Note that a transfer from the transferor scheme shall be deemed as a sale of units and will be taxed according to existing tax laws. STP allows an investor to park a lumpsum amount in mutual funds, for e.g. liquid, ultra-short, arbitrage or other safe investment strategies, and gradually shift a fixed sum into another fund with a long-term investment objective, for e.g., equity funds. Amongst other benefits, this facility helps an investor to benefit from rupee-cost averaging, i.e., buying more units when NAV is low and less units when NAV is high, helping one to save efforts of trying to time the market. Q2. If I invest in a fund directly through the bank, will it be a direct investment with lower expense ratio? \u2014V Ganesh A direct plan is the one that an investor buys directly from the mutual fund. Since there is no intermediary (distributor\/broker) involved in this transaction, the AMC does not have to pay any commission or trailing fees. A regular plan is one that is purchased through an intermediary who helps the investor in understanding the investment strategy of the fund, fill the required forms, and fulfill other necessary administrative procedures. For providing this service and onboarding the client, the AMC pays commission and trailing fees to the intermediary. This cost then reflects as a higher expense ratio of the regular plan. If you are investing in a fund through a bank that is registered as a distributor you would be investing in a regular plan (with higher expense ratio) and not a direct plan (with lower expense ratio). On the other hand, if the bank is a Registered Investment Advisor (or RIA) the investment could be in the \u2018Direct plan\u2019. The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonal email@example.com.