SIP vs SWP vs STP
In the investment world, three key players that dominate are SIP, SWP,
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SIP Insurance Plan Benefits
Start SIP with as low as ₹1000
No hidden charges
Save upto ₹46,800 in Taxunder section 80C^
Zero LTCG Tax¶
Disciplined & worry-free investing
- Insurance Companies
- Mutual Funds
|
Returns |
| Fund Name |
3 Years |
5 Years |
10 Years |
| PNB Metlife |
18.68% |
25.83% |
|
| Birla Sun Life |
17.56% |
21.84% |
|
| Tata AIA |
18.45% |
21.82% |
|
| Bharti AXA |
14.74% |
18.58% |
|
| Bajaj Allianz |
17.34% |
20.53% |
|
| HDFC Standard |
14.77% |
17.79% |
|
| Max Life |
15.5% |
17.5% |
|
| SBI |
14.88% |
16.53% |
|
| ICICI Prudential |
13.23% |
15.89% |
|
| Canara HSBC Oriental Bank |
12.92% |
13.89% |
|
| |
Returns |
| Fund Name |
3 Years |
5 Years |
10 Years |
| Active Fund QUANT |
24.92% |
31.48% |
|
| Flexi Cap Fund PARAG PARIKH |
20.69% |
26.41% |
|
| Large and Mid-Cap Fund EDELWEISS |
22.34% |
24.29% |
|
| Equity Opportunities Fund KOTAK |
24.64% |
25.01% |
|
| Large and Midcap Fund MIRAE ASSET |
19.74% |
24.32% |
|
| Flexi Cap Fund PGIM INDIA |
14.75% |
23.39% |
|
| Flexi Cap Fund DSP |
18.41% |
22.33% |
|
| Emerging Equities Fund CANARA ROBECO |
20.05% |
21.80% |
|
| Focused fund SUNDARAM |
18.27% |
18.22% |
|
What is SIP?
A Systematic Investment Plan (SIP) is a popular investment strategy in India that allows investors to invest a fixed amount of money at regular intervals (weekly, monthly, or quarterly) in ULIPs, mutual fund schemes, stocks etc. This is a disciplined way to invest and helps in building financial discipline. It also helps benefit from rupee cost averaging and the power of compounding.
SIP Calculator
Monthly Investment
₹22.4 L
Top Funds with High Returns (Past 7 Years)
19.3%
High Growth Fund
15.61%
Accelerator Mid-Cap Fund II
15.48%
Opportunities Fund
What is SWP?
SWP stands for Systematic Withdrawal Plan. It's an investment strategy used in mutual funds that allows you to withdraw a fixed amount of money at regular intervals from your investment. This can be a great way to generate regular income from your investments, especially during retirement.
Here's how SWP works:
-
You invest a lump sum amount in a mutual fund scheme.
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You set up an SWP with your chosen amount and withdrawal frequency (monthly, quarterly, etc.).
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On the chosen date, the mutual fund house will redeem the required units from your investment to fulfil the withdrawal amount.
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The remaining units continue to be invested in the scheme, potentially growing your capital.
What is STP?
Systematic Transfer Plan (STP) is a strategy that allows you to move your money from one mutual fund scheme to another, at regular intervals like monthly or quarterly. It's like a pre-programmed transfer between two funds within the same fund house.
How it works:
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Choose your funds: You select two schemes: a source scheme (usually a debt fund) and a target scheme (usually an equity fund with higher potential returns).
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Set up your STP: Decide on the amount you want to transfer regularly and the frequency of transfers.
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Automatic transfers: On the chosen date, the specified amount is automatically transferred from your source scheme to your target scheme.
Benefits of SIP
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Disciplined Savings: Encourages regular, automated contributions, building financial discipline and consistency.
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Rupee-Cost Averaging: Invests fixed amounts at different market points, averaging out investment costs and reducing the impact of volatility.
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Power of Compounding: Reinvests returns, allowing your money to grow over time. You can use an SIP Calculator to see how compounding helps your money grow.
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Flexibility: Start with small amounts and adjust contributions as your income grows.
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Suitable for: Long-term wealth creation, retirement planning, and achieving specific financial goals.
Benefits of SWP
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Regular Income: Generates a steady income stream from your investments, ideal for retirees or those seeking supplemental income.
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Tax Efficiency: Withdrawing only invested capital avoids capital gains tax in certain cases.
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Manage Corpus: Controls the rate at which your capital is decreased, allowing you to stretch your savings longer.
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Flexibility: Choose the amount and frequency of withdrawals to match your needs.
Benefits of STP
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Gradual Risk Management: Shifts investments from lower-risk (debt) to higher-risk (equity) funds gradually, managing risk and potential returns.
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Rupee-Cost Averaging: Similar to SIP, averages out the cost of units in the target scheme through regular transfers.
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Tax Benefits: Transferring within the same tax bracket avoids capital gains tax on the transferred amount.
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Disciplined Investment: Automates transfers, avoiding emotional decisions based on market fluctuations.
SIP vs SWP vs STP
| Feature |
SIP |
SWP |
STP |
| Investment Goal |
Long-term wealth creation |
Regular income |
Gradual risk management & growth |
| Risk Tolerance |
Moderate to high |
Low to moderate |
Moderate |
| Income Generation |
Yes |
Yes |
Can be used for income |
| Market Volatility |
Manages through rupee-cost averaging |
Less impacted |
Manages through controlled transfer |
| Investment Horizon |
Long-term (5+ years) |
Medium to long-term (depending on corpus) |
Long-term (5+ years) |
Which One is the Right Fit for You?
The best option for you depends on your individual circumstances and goals. Consider:
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Investment Horizon: SIP and STP are ideal for long-term goals, while SWP is suited for income generation.
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Risk Tolerance: SWP and debt-focused STPs offer lower risk, while equity-focused STPs and SIPs involve higher risk but potentially higher returns.
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Financial Needs: SWP is ideal for regular income, while SIP and STP focus on wealth creation and long-term goals.
Conclusion
SIP, SWP, and STP are investment strategies offering different benefits. SIP allows regular investment, SWP facilitates periodic withdrawals, while STP enables systematic transfers between funds. Each serves unique financial goals: SIP for disciplined investing, SWP for regular income, and STP for asset allocation. Choosing the right strategy depends on individual investment objectives and risk tolerance.
FAQ's
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What are the disadvantages of SWP?
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Depletes corpus: Over time, withdrawals reduce your invested amount.
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Market impact: Withdrawals during market downturns can amplify losses.
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Tax implications: Depending on withdrawal strategy, capital gains tax might apply.
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Is STP better than lump sum?
It depends on your risk tolerance and goals:
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STP: Offers gradual exposure to higher-risk assets, potentially reducing risk and capital gains tax.
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Lumpsum: Invests all at once, potentially capturing market highs but also carrying higher risk.
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Can we do SIP and SWP together?
Yes, but not in the same scheme:
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SIP: Invest regularly in a growth-oriented scheme for long-term goals.
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SWP: Withdraw from a separate, established scheme to generate income.
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What is the 8 4 3 rule in SIP?
The 8 4 3 rule in SIP advises investing 8% of your monthly income, selecting 4 diversified equity funds, and committing to a minimum 3-year investment period to attain financial objectives through mutual funds.
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What is the 4% SWP rule?
The 4% SWP rule proposes withdrawing 4% of your initial retirement savings during the first year of retirement and annually adjusting the amount for inflation to sustain financial stability.
