Anyone who has thought about monthly investments that could lead to a lump sum is already familiar with the concept of a systematic investment plan. However, there are still other systematic methods that serve that purpose too. Here are some of the most frequently used terms in the context of mutual funds. They are also the three most common systematic methods that most investors get confused about which one to stick to. Are you wondering what would be best for you? SIP or SWP which is better? Or would it be STP? First, let us understand what each of them means, how they work and what is the nature of it.

What is SIP in Mutual Funds?

A SIP is a systematic strategy for investing that entails designating a modest pre-determined amount of money for market investment at regular periods (often once a month). The SIP method is the recommended method of investing in stocks and mutual funds because it allows you to participate in the market while better controlling risk.

What does STP in Mutual Fund Means?

An STP, or Systematic Transfer Plan, transfers a set amount of money from one mutual fund to another on a regular basis. An STP, for example, might move Rs 10,000 per month from Axis Liquid Fund to Axis Bluechip Fund. An STP is often used to move money from a liquid or debt fund to an equity fund. This averages out an investor’s purchase price in the equity fund, lowering his or her risk.

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Meaning of SWP in Mutual Fund

For many investors who seek regular cash flow from their assets, bank fixed deposits or postal deposits are the obvious choices. However, falling interest rates on these programs have caused investors to be concerned about their future income requirements. SWP, a type of mutual fund, has a solution for this. What exactly is SWP in a mutual fund? SWP, or systematic withdrawal plan, is a mutual fund investment plan that allows investors to withdraw predetermined sums at regular intervals, such as monthly, quarterly, or yearly, from any mutual fund scheme in which they have invested.

The investors can select a day of the month/quarter/year for withdrawal, and the AMC will credit the money to their bank account. SWP Plan generates this cash flow by redeeming mutual fund scheme units at the specified frequency. SWP investors can continue to invest as long as there are remaining units in the scheme.

Now that we know what the three of them are, we can know what is best for which investor through a comparative study of the three.

A Comparative Analysis of SIP, STP and SWP

Are you concerned about which one to use? SIP, STP, and SWP are all systematic and strategic approaches to investing in and withdrawing from mutual funds. Individuals can choose any of the choices based on their needs.

In a nutshell, SIP refers to a systematic way of investing in Mutual Funds, whereas STP refers to a systematic transfer of funds from one Mutual Fund plan to another. Finally, SWP refers to the systematic withdrawal of money or redemption of Mutual Fund units. The first two words are about investment, while the third is about withdrawal.

Tax:- In the case of SIPs, each SIP is regarded as a distinct investment for the purposes of calculating the tax on profits upon redeeming from the plan. Because each transfer in STP is considered as a redemption, profits on investment are taxed. Individual withdrawals from the SWP plan generate taxable gains.

Suitable:- SIP investments are appropriate for investors’ regular savings and investing needs. This can contribute to long-term capital appreciation. STP plans are appropriate when an investor has to migrate into another scheme based on their risk-return characteristics and financial goals. SWP plans are appropriate for providing individuals’ regular income requirements, such as older citizens. Furthermore, SWP plans may be used to fund recurring expenses such as EMIs, school/college tuition for children, and so on, allowing for high returns while making regular payments.

Nature:- SIP is more of an investment, whereas, STP is a transfer, and SWP is a withdrawal.

How it Works:- An SIP can be regular or fixed investments over a pre-set period of intervale. An STP is a regular and fixed amount that is transferred from one mutual fund to another scheme. Finally, SWP is a regular and fixed form of withdrawals from schemes for a pre-set period of time.

The Benefits of SIP

  • A SIP encourages discipline since a certain amount is taken from your account each month. It is invested in the fund of your choice. When the required amount of money is accessible in your bank account on the withdrawal date, the investment occurs on its own.
  • SIPs provide peace of mind since they eliminate the need to worry about market timing or volatility.

The Benefits of STP

  • STPs are useful since they allow one to get the most bang for one’s buck in a volatile stock market situation.
  • Through tactical asset allocation and rebalancing, STPs maximize the power of compounding. This also aids in financial planning, as rupee cost averaging lowers the risk in your portfolio.

The Benefits of SWP

  • A person’s money can be routinely redeemed based on liquidity needs.
  • As a result, one might have a consistent monthly income in their bank account.

Now that you have a clear picture of all three schemes it is easier for you to analyze which of these is the best one for you.


SIP, STP, and SWP are systematic and strategic methods by which you can easily invest and withdraw from mutual funds and leaves you with much more perks. You can easily bridge the gaps with the difference between STP and SWP, SIP and SWP, and more, and understand what is the perfect match to reach your financial goals.


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