Mutual funds are some of the most popular options among investors, and they refer to pooled investments from multiple investors managed by professionals or fund houses. They also offer numerous plans you can choose between. These include SIP, STP, and SWP. In this article, we break down SIP, STP, and SWP and the differences between them.
SIP stands for Systematic Investment Plan. It is a popular investment strategy where investors are able to invest fixed amounts of money at regular intervals, which could be weekly, monthly, or quarterly. They come with several benefits:
1. Flexibility: SIPs are flexible investments. You can start off by putting in smaller amounts, then move on to higher amounts as your income grows.
2. Encouraging Discipline: SIPs require you to contribute a certain amount of money at regular intervals without fail, encouraging financial discipline.
3. Compounding Returns: Sips also benefit from compounding returns, allowing returns to grow over time.
Systematic Withdrawal Plans, or SWPs, are also popular investment strategies. They allow investors to withdraw money from their investments regularly and are a good way to generate regular income (like during retirement). Similar to SIPs, the fixed income from a SWP goes directly to your preferred bank account on a predetermined date. Some of its benefits include:
1. Generate Regular Income: SWPs are an effective way to generate steady income streams from your investments without liquidating your entire investment.
2. Tax Benefits: Withdrawals from SWPs sometimes help avoid capital gains tax.
3. Flexible: They allow you to decide the frequency at which you make withdrawals and the amount to suit your requirements.
STPs stand for Systematic Transfer Plans. They are a strategy in which funds are transferred between one mutual fund scheme to another at regular intervals. To put it simply, it is a pre-planned transfer between two funds inside the same house. Some benefits include:
1. Risk Management: STPs shift your investments from lower to higher-risk funds, helping to manage risks.
2. Tax Benefits: Transferring funds within the same tax bracket may help you avoid capital gains tax on the investment.
3. Encourages Discipline: STP transfers are automated to occur at regular intervals. This encourages financial discipline.
Let’s look at the difference between SIP, SWP, and STP:
| Criteria | SIP | SWP | STP |
| Risk | Moderate to High | Low | Moderate |
| Investment Horizon | Long-term, generally more than 5 years | Depens on the corpus, typically medium to long-term | Long-term, generally more than 5 years |
| Purpose | Building wealth | Regular income | Building wealth and managing risk |
Investing in SIPs, SWPs, and STPs are effective ways to achieve your financial goals and build wealth. However, it can be challenging to understand the different plans and how they work. Learning how to leverage them according to your financial needs and goals is a must. For expert guidance, head to Tata Capital’s Moneyfy website or download the app and begin your journey today!
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04 March 2025
3 mins read
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