When it comes to mutual fund investing, SIP is a widely popular concept that helps you build wealth in a regular, disciplined manner. However, many investors are unaware of other systematic features—STP and SWP—that can be smartly used to achieve financial goals. In this article, we will explore the benefits of all three systematic features of Mutual Funds and how you can incorporate them into your investment planning.
Systematic Investment Plan (SIP)
A systematic investment plan (SIP) involves investing a fixed amount regularly into a Mutual Fund. This plan is ideal for investors looking to build wealth over time with disciplined and periodic investments.
Example:
Imagine you decide to invest ₹5,000 every month into a Mutual Fund through an SIP. Over the course of 20 years, you would have invested ₹12 lakhs. Due to market fluctuations, the price of Mutual Fund units varies, but SIP helps in averaging the purchase cost over time, thus mitigating the risk of market volatility. Assuming a growth of 12% annualised returns, the value of your SIP investments could grow to over ₹49 lakhs in a 20-year period.
Systematic Transfer Plan (STP)
A systematic transfer plan (STP) allows you to transfer a fixed amount from one Mutual Fund scheme to another within the same fund house. This strategy is useful for managing risk and ensuring liquidity.
Example:
Suppose you have invested ₹1,00,000 in a debt fund and you want to gradually move this amount to an equity fund. Through an STP, you can transfer ₹10,000 every month from the debt fund to the equity fund. This way, you reduce the risk of market timing and average out the cost of purchasing equity fund units.
Systematic Withdrawal Plan (SWP)
A Systematic Withdrawal Plan (SWP) enables you to withdraw a fixed amount from your Mutual Fund investment at regular intervals. This plan is particularly beneficial for retirees or those seeking a regular income stream from their investments.
Example:
Assume you have a Mutual Fund investment worth ₹50 lakhs and you want to withdraw ₹20,000 every month to meet regular expenses. With an SWP, you can set up a monthly withdrawal of ₹20,000, which provides a steady income by redeeming equivalents units while the remaining investment continues to grow.
SIP vs STP vs SWP: Detailed comparison
| Parameter |
SIP |
STP |
SWP |
| Investment objective |
Long-term wealth accumulation |
Risk management and optimising returns |
Regular income generation |
| Ideal for |
Salaried individuals, steady income earners |
Investors looking to manage asset allocation |
Retirees, individuals needing regular income |
| Risk management |
Rupee cost averaging to mitigate market volatility |
Reduces risk by transferring funds in a staggered way |
Predictable income helps in financial planning |
| Liquidity |
Liquid investments, subject to exit loads and lock-in periods |
Provides liquidity by allowing fund allocation adjustments |
Ensures liquidity through regular withdrawals |
| Financial goals |
Long-term goals like retirement, education, buying a house |
Medium to long-term goals requiring risk management and asset allocation |
Steady income to meet living expenses or other regular financial needs |
Also Read: What is a Mutual Fund unit and how does it work?
Conclusion
Choosing between SIP vs STP vs SWP ultimately depends on your financial goals, risk tolerance, and investment horizon. SIP is excellent for disciplined wealth accumulation, STP for managing and optimising risk, and SWP for ensuring a regular income stream.
To make the most of these options, consider using tools like a SIP Calculator from Axis Bank to project your potential returns and make informed decisions. Embrace the investment plan that aligns with your financial goals and secure your future with confidence.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
