While most people are aware what SIP is, majority are not aware of what STP and SWP is. It is important that investors understand what STP and SWP is as the same can form an important element of financial planning.
What is SIP? What is STP? What is SWP? In Mutual funds
Let us understand how these methods work:
Systematic Investment Plans
Under this method, one invests a fixed amount in a mutual fund scheme regularly on a particular date of every month. Benefit of investing through SIP is that one does not have to time the market. There are consistent deposits which lead to investing in the high as well as lowmarket that help you make the best out of the overall opportunities that were not easy to predict in advance. The investors are required to submit onetime request for regular investment in the particular scheme of mutual fund.
A number of advantages one has while investing through the SIP. The essential benefit is having a dedicated and focused approach towards investment. Though there is a tremendous enthusiasm when people enter into the investment markets but fail to make regular investments. However, this plan reduces the burden later on as there is a predefined condition of investing a specific amount every month. So, one achieves an investment discipline. Also, one enjoys investment convenience. Another big advantage is rupee cost averaging. Because you get more units when market is down and lesser units when market is up, it helps to overcome risk of volatility and helps you generating better returns in long term.
So, the SIP system works where you have money in your bank account, and every month a fixed sum is transferred from your bank to the mutual funds.
Systematic Transfer Plans
The STP is a plan where one invests a lump sum amount in a particular scheme, mostly a liquid or money market fund and then transfer a particular amount to some other scheme in a predetermined interval. While the markets being very volatile and you do not want to take a risk with your money in the short term, you can choose to invest in equity mutual funds through systematic transfer plans. Thus, under the volatile market situations, investing in the STP scheme is better as you purchase units of equity funds in staggered manner and at also earn some returnson the balance amount in the liquid fund, where you park your moneyinitially.
Read More:
- Benefits of Systematic Investment Plan In Equity Mutual Funds
- Reasons Why Should We Invest In Mutual Funds
- What are Different Types Of Mutual Funds
- Reasons Why We Invest In Debt Oriented Mutual Funds.
So, The STP system involves investing a whole sum of money in mutual funds, mostly a liquid fund and selling some units of the same to further investing in equity mutual funds.
Systematic Withdrawal Plan
One can plan regular monthly incomes through the Systematic Withdrawal Plans. As per your requirement, you can choose to withdraw monthly as well as on quarterly basis. One usually opts for this plan to get a regular income after retirement to maintain cash-flow.
The SWP system works where you want to withdraw a fixed amount of money monthly or quarterly from your mutual funds to your bank account. It is exactly opposite of SIP.
Each opportunity has its own benefits. As per one is objective and circumstances, one can choose the best option and get the best out of their earning to build their dreams better.
Benefits of Systematic Investment Plan | SIP | Advantages of Systematic Investment Plan | Features Of Systematic Investment Plan SIP
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