WHAT IS SIP?
Systematic investment plan: This is a method of investing in a mutual fund, wherein you put in a fixed amount with predefined periodicity in a scheme of your choice. So, instead of a lump sum, you invest a predecided amount at regular intervals for a defined period. For instance, instead of putting in Rs.1.8 lakh in a largecap scheme of a fund house at one go, you can invest Rs.5,000 fortnightly, monthly, half-yearly, or with any frequency that suits you, for as long as you need to invest.What are the benefits?
Rupee cost averaging: The SIP method helps tackle volatility by averaging the cost of buying mutual fund units. If the market falls, you buy more units at a lower NAV, and if the market rises, you buy fewer units. Over the long term, your cost of purchasing is levelled out, helping you ride the market ups and downs smoothly. You don’t have to worry about timing the market.
Compounding: Small amounts invested regularly over a long period gain from compounding, boosting your investment.
Flexibility & discipline: The method is flexible in terms of the amount you want to invest and the period for which you want to do so. It results in disciplined investing and eases the strain on your budget as you can decide the amount you want to invest.WHAT IS SWP?
Systematic withdrawal plan:
While SIPs are used to invest, SWPs help during withdrawal from a mutual fund. This is a way to draw down a fixed amount from a mutual fund scheme with a predefined regularity. You don’t need to worry about timing the exit from the market or redeeming at a loss during a bear phase.
What are the benefits?
Regular income: It helps provide a regular cash flow for specific goals or needs, and can even act as a source of monthly income during retirement.
Capital appreciation: If your withdrawal rate is lower than the growth of your mutual fund corpus, your capital can grow even as you derive a regular income.
WHAT IS STP?
Systematic transfer plan: This helps you transfer a predecided amount from one scheme to another within the same fund house, be it from equity to debt, or vice versa. So, if you want to move Rs.3 lakh from a debt plan to an equity scheme, you can opt for an STP of Rs.10,000 a month, or any other amount and frequency as per your need, to stagger the investment.
What are the benefits?
Low risk, high returns: You can manage risk in market swings by shifting to a low-risk scheme, or move to high performers in an upswing.
Stable portfolio: It helps you move out of underperforming schemes, while allowing you to maintain the balance between debt and equity to retain the desired asset allocation.