Systematic Investment Plan

SIP, STP & SWP

By
Dr. Ibha Rani
Kristu Jayanti College, Autonomous
SIP
• Systematic Investment Plan is an investment strategy wherein an investor needs to invest the same
amount of money in a particular mutual fund at every stipulated time period.
• SIP (Systematic Investment Plan) is a mutual fund tool and is one of the easiest ways through
which any common man can enter the stock market.

• SIP) is a plan in which investors make regular, equal payments into a mutual fund, 
trading account, or retirement account such as a 401(k). SIPs allow investors to save regularly with
a smaller amount of money while benefiting from the long-term advantages of Rupee
-cost averaging (RCA).

• By using a RCA strategy, an investor buys an investment using periodic equal transfers of funds to
build wealth.
• A SIP generally pulls automatic withdrawals from the funding account and may require extended
commitments from the investor.
• Most brokerages and mutual fund companies offer SIPs.
 SIP Features
• Rupee Cost Averaging
• Compounding Effect
• Flexibility

• Rupee cost averaging:

• NAV (Net Asset Value) is the price one pays for a SIP unit and this keeps changing according to
market fluctuations. As an investor buys SIP units periodically on varying NAV basis, the
average cost of a SIP unit gets lowered.

• Investing in SIP enables an investor to take part in the stock markets without actively timing
them and he/she can benefit by buying more units when the price falls and less units when the
price rises. This scheme helps reduce the average cost per unit of investment through a method
called Rupee Cost Averaging.
• Compounding effect:
• This simply means that the principal you invest keeps growing as you re-invest the returns generated
from the investment. As this process is done for a longer time period, one can start accumulating
substantial amount of wealth. That’s why the important mantra of investing is to start investing at a
young age.
• Flexibility:
• Anybody can enter the SIP market as the minimum amount required to begin your investment is Rs.
500 only. There are options that allow you to pause a SIP investment if you face any financial crunch
and it also enables you to resume investing as per your convenience.
• You can start investing in SIP online in a very simple manner. Auto debit facility in SIP ensures an easy
process of investing. When you fix upon the amount and time interval, particular amount will get
debited from your bank account and it will be paid to the SIP fund as per your choice at the pre-set
time interval.
• The best tool to fight market volatility:
• Investors hurry and exit SIP during times of market volatility. But it is the right time to accumulate SIP
units and it is a proven fact that the longer you hold your SIP, the probability of getting better returns
increases.
• Pros of SIP
• "Set it and forget it"
• Imposes discipline, avoids emotion
• Works with small amounts
• Reduces overall cost of investments
• Risks less capital

• Cons of SIP
• Requires long-term commitment
• Can carry hefty sales charges
• Can have early withdrawal penalties
• Could miss buying opportunities and bargains
Systematic Withdrawal Plan (SWP)
It is a scheduled investment withdrawal plan that is generally used in retirement. SWPs
can be structured in several ways by investors. Typically, mutual funds permit an
investor to decide on an SWP, which includes monthly, quarterly, semi-annual, or
annual interval payouts.

SWPs address a number of financial needs for investors. They can be used to create a
regular additional stream of income for investors which can be used for children's
education, rent, regular medical expenses or just for supporting regular expenses.
SWPs are also an ideal choice for funding regular income during retirement years.
(c) Systematic Transfer Plan (STP)

A systematic transfer plan or STP allows you to periodically transfer

(switch) a certain amount of units from one mutual fund scheme to
another mutual fund scheme of the same mutual fund house. You may
consider an STP from an equity scheme to a debt scheme or vice versa
depending on the market conditions.

Systematic Transfer Plan (STP) enables a disciplined and planned

transfer of funds between two mutual fund schemes. In most cases,
investors initiate an STP from a debt fund to an equity fund.