What is SIP and SWP in mutual funds?
People many times misunderstand SIP (Systematic Investment Plan) as mutual funds but the mutual fund industry is huge, consisting of a wide basket of different financial products and one of them is SIP. Another product from the same basket is SWP (Systematic Withdrawal Plan). If you are confused about how different these two are even though they both are systematic plans, here’s your answer:
SIP is the most simple and disciplined way of investment. An investor regularly invests a pre-determined amount at a pre-determined date and purchases the fund units. Unlike directly investing in stocks, SIP investment offers better risk control and diversification. By staying invested through the market cycles, you get the benefit of rupee cost averaging.
With SIP, you can invest small amounts without hurting your bank balance. With a longer period of time, regular and small investments in SIP grow into a large corpus.
For eg: If you systematically invest Rs.5000 in SIP at the rate of 15% interest for 15 years, it will be Rs.33, 84,315 in exchange for a total of Rs. 9,00,000 invested.
With the power of compounding, rupee-cost averaging and disciplined investments, SIP can help you in accomplishing your financial goals.
SWP, on the other hand, builds you an additional source of regular income. An investor has to invest a lumpsum amount initially under a Systematic Withdrawal Plan and then based on needs he can decide the amount to be redeemed every month.
For eg: You have invested Lumpsum of Rs. 5,00,000 in SWP. As per requirement, you can decide to redeem Rs. 5000 every month.
In a nutshell, under SIP investor invests a predetermined amount every month to generate a large corpus for goals and in SWP, an investor invests a large corpus for generating fixed and regular income.
If you would like to invest through either SIP or SWP but don’t know which scheme is the best for you, then I would advise you to invest with the help of a mutual fund distributor associated with a reliable organization like NJ India. NJ is India’s one of the largest mutual fund distributors and has Asset under Management(AUM) of Rs. ₹1,23,245 Cr.