SIP vs STP vs SWP
- 3m0•
- 28 Jan 2023
SIP, STP and SWP all are strategic and organised investment options for investing and withdrawing funds in mutual funds. Depending on your needs, you can choose and plan accordingly.
SIP stands for Systematic Investment Plan, an organised method of investing small amounts, as low as INR 500, in mutual funds at regular intervals. It is a target-based investment scheme, offering several benefits like rupee-cost averaging, compounding capacity and inculcating systematic savings and investment habits.
STP stands for Systematic Transfer Plan. It allows the investor to get consent from the concerned mutual fund company to transfer the funds from one scheme to another, remaining in the same fund house, depending on the market situation and your personal needs. This transfer is done from one ultra short-term or liquid fund to an equity fund.
SWP is a Systematic Withdrawal Plan where the investors can redeem funds in small amounts at regular intervals. First, you need to invest in schemes like liquid funds and then redeem them, depending on the needs.
A comparative study will clarify the picture:
Definition
Investing a fixed amount in any mutual fund scheme at regular intervals
Transferring a fixed amount of money from one mutual fund scheme into another
Withdrawing or redeeming a fixed amount from an investment done before in mutual funds
Tax implications
Every SIP is considered a separate investment in terms of tax calculations. Tax is applied only on the gains earned on specific investments once they are sold. On redemption, the capital gains are taxed.
Tax is decided on the nature and the type of fund you transfer from and the holding period duration. It is decided on each transfer amount and gets redeemed from another scheme.
Tax is applicable on the gains on withdrawals, depending on the nature of the concerned scheme and the holding period.
Suitability
Ideal for long-term capital gains and appreciation
Perfect for transferring to other suitable schemes, depending on the circumstances and market conditions
Ideal as a regular income needs fulfilment and covering recurring expenses
Working strategy
Fixed and regular investments over a predefined periodic interval
Fixed and regular amount transfer from one mutual fund scheme to another, remaining in the same fund house
Fixed and regular withdrawal from specific mutual fund schemes for a predefined span
Periodicity
Fortnightly, monthly, quarterly, depending on your need and preference
Fortnightly, monthly, quarterly, depending on your need and preference
Fortnightly, monthly, quarterly, depending on your need and preference
Purpose
Growing long-term investment
Developing and protecting a long-term investment
Redeeming accumulated investments
| CRITERION | SIP | STP | SWP |
|---|---|---|---|
Nature of the plan | Investment | Transfer | Withdrawal |
Definition | Investing a fixed amount in any mutual fund scheme at regular intervals | Transferring a fixed amount of money from one mutual fund scheme into another | Withdrawing or redeeming a fixed amount from an investment done before in mutual funds |
Tax implications | Every SIP is considered a separate investment in terms of tax calculations. Tax is applied only on the gains earned on specific investments once they are sold. On redemption, the capital gains are taxed. | Tax is decided on the nature and the type of fund you transfer from and the holding period duration. It is decided on each transfer amount and gets redeemed from another scheme. | Tax is applicable on the gains on withdrawals, depending on the nature of the concerned scheme and the holding period. |
Suitability | Ideal for long-term capital gains and appreciation | Perfect for transferring to other suitable schemes, depending on the circumstances and market conditions | Ideal as a regular income needs fulfilment and covering recurring expenses |
Working strategy | Fixed and regular investments over a predefined periodic interval | Fixed and regular amount transfer from one mutual fund scheme to another, remaining in the same fund house | Fixed and regular withdrawal from specific mutual fund schemes for a predefined span |
Periodicity | Fortnightly, monthly, quarterly, depending on your need and preference | Fortnightly, monthly, quarterly, depending on your need and preference | Fortnightly, monthly, quarterly, depending on your need and preference |
Purpose | Growing long-term investment | Developing and protecting a long-term investment | Redeeming accumulated investments |
Benefits | Compounding; Rupee cost averaging; Organised investing | Earning through fixed income investments; Compounding; Rupee cost averaging; Disciplined investment | Earning from investments even when you withdraw; Satisfies worries about re-investment of the corpus post-retirement |
Conclusion:
It is best to allocate funds in all the schemes to maintain a proper balance and enjoy a diversified financial portfolio. However, you must consider the current market conditions before investing, as mutual fund investments are subject to market risks.
