Making the most of SIP, STP and SWP
Most of the investors are very well conversant with Systematic Investment Plan (SIP), but not many investors are aware of the Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP) of mutual funds. Let us understand what these plans are how investors can benefit from them.
Systematic Investment Plan
Most of the investors are aware that SIP facilitates investing small amounts of money on a regular basis to build a large corpus over a period of time. SIP benefits the investor by averaging the cost of purchase and thereby obviating the need to time the market. SIP enforces discipline in the process of investing and helps inculcate the habit of saving regularly. The investor can do a SIP on a daily, weekly or monthly basis as per his convenience.
Systematic Transfer Plan
This option can be used to transfer a specific amount from one scheme to another. This is usually done by investing a lump sum amount in one mutual fund scheme (usually a debt scheme) and then transfer a fixed amount at periodic intervals from this scheme to another mutual fund scheme (usually an equity scheme). Such transfer from debt to equity scheme is done at an opportune moment when the equity markets are expected to witness an uptrend. Of course, STP can also be availed for transfer of money from an equity fund to a debt fund to meet important financial goals such as children’s education or marriage, building up retirement corpus, etc.
Systematic Withdrawal Plan
The SWP is different from STP as it allows the investor to withdraw a specified sum from a mutual fund scheme at regular intervals. SWP is particularly suitable for those in need of regular source of income (such as retirees). The withdrawals can be made on a weekly, monthly or quarterly basis, depending on the requirement of the investor.