What Is An Sip, Stp And Swp?

Systematic Investment Plans (SIPs), Systematic Transfer Plans (STPs), and Systematic Withdrawal Plans (SWPs) are the most popular forms of investing in a mutual fund.

Systematic Investment Plan (SIP) is meant for people working toward a financial goal and can invest a fixed sum of money on a regular basis. So for salaried professionals, this is an ideal investment option. In this plan, a fixed amount is invested in the same fund on a monthly or quarterly basis. If you invest for a period of at least 5 years, the investment plan can give significant returns. One of the reasons this plan is very effective is something called „rupee cost averaging?. The investments every month would have been done at different NAVs (which is determined by the market conditions) and so the number of units purchased in the mutual fund would differ each month. But since, the market would, in general over any 5+ year period, have improved, the costs would have averaged out – leading to a greater return on investment.

If you have a lump-sum amount with which to make an investment, investing it all in one-go can increase the risk that the value of the investment would get affected by the market conditions. If for example, someone invests Rs. 5,00,000 today and overnight the market corrects itself by 10%, then the value of the investment would also overnight become Rs. 4,50,000. Instead, a Systematic Transfer Plan (STP) allows you to invest the money in a debt fund, which provides a stable return. And then, over a 6 to 12 month period, the money in the debt fund can be systematically transferred into an equity funds. Your advisors, if knowledgeable and efficient like Wealth Central, can ensure that this is planned in a phased and effective manner. Equity funds provide better return on investment and the fact that the money is transferred over a period of time again provides the advantages of averaged out costs and reduces market risks.

A Systematic Withdrawal Plan (SWP) allows you to withdraw the money you have invested in a fund in a systematic fashion. Let?s say that you have invested in a SIP for 20 years. Now, you are about to retire and would like to use the money for your expenses. You do not need to withdraw all the money in one go. A SWP lets you take out a sum every month – the rest of the money you have invested continues to earn for you!