Along with SIP, other methods include Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP) which can be used by investors for systematic planning depending on their type of investments.
Planning to start investing in mutual funds this festive season? If yes, here’s how you can utilise your money smartly to secure your future financially. For systematic investment, you can invest in mutual funds through either of the three systematic methods – SIP, STP, and SWP.
In the last few years, Systematic investment plan (SIP) has become very popular in India. Other than SIP, other methods include Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP) which can be used by investors for systematic planning depending on their type of investments. These systematic methods serve the purpose of systematic investing and withdrawing in mutual funds.
If you are planning to invest, find out which of these systematic plans suits you the best;
Systematic investment plan (SIP) – SIP is known as one of the most disciplined ways of investing, and have also gained popularity over the last few years. Many investors, however, are still confused about SIPs, including people who have already made investments using the method in mutual funds.
One with the objective to build a corpus can invest start investing a fixed sum of money over time through SIP. As this investment is for a long investment period, one also gets the benefit of averaging their cost of purchase. Averaging the cost of purchase means it balances the risk of an investor’s investments by not putting all his/her money at a market peak and therein maximizes returns.
One can invest small amounts of money over time, to build a corpus through SIP. Investors can choose the frequency of the SIPs depending on their needs, which can be daily, weekly, quarterly, monthly, or yearly. Experts suggest investors should invest in equity funds through SIPs and not opt for debt funds as they are normally less volatile than equity funds.
Systematic Withdrawal Plan (SWP) – SWP is the opposite of SIP. Under SWP, investors get the option to withdraw a fixed sum of money from their investment at regular intervals. For instance, you need to invest a lump sum amount in a fund. Then through SWP, you can opt for transferring a fixed amount at regular intervals. Simply put, you invest a corpus first through SWP, to withdraw a fixed monthly amount later.
People who have retired and senior citizens can especially opt for this, who are looking for a fixed flow of income and wish to get a monthly income for daily expenses. SWP protects investors from market instability and also avoid timing the market.
Systematic Transfer Plan (STP) – STP is for investors, who are planning to invest a lump-sum. STP spreads the investment over a period of time and eliminates the risk of getting into the market at its peak.
You can invest a lump sum in a fund generally a debt scheme, and with Systematic Transfer Plan, you can transfer a fixed amount regularly to an equity scheme. In other words, you can earn a little extra on your lump-sum investment while transferring it in equity. It can also be done from an equity fund to a debt fund. While investing, depending on the lump-sum amount you have to decide the period over which you want to transfer the money from one scheme to another. Note that, the larger the amount, the longer the time period.