Types of Investment Modes – SIP, STP & SWP

Almost everyone has a set of defined financial goals which they want to achieve. Some set short term goals, while others have long term financial goals. In a majority of situations, the monthly income isn’t sufficient to meet all the necessary expenses. To be successful in reaching the financial goal, one can inculcate the discipline of savings. These regular savings can later be converted into goal based investments. Mutual fund investments have the potential to reap high growths and can help investors reach their ultimate financial goals.

Mutual fund investments have the potential to provide returns, are actively managed by professionals, and have the quality of balancing risk. All these qualities do make mutual fund investments a wiser option to choose from. What mutual funds do is that they collect money from investors and invest this pool of funds in various assets like the equity market, gold, bonds and other debt and money market instruments, government securities etc. They can be one way to diversify an investor’s financial portfolio as they balance risk by allocating assets belonging to different sectors.

What are some of the salient features of mutual fund investments?

Managing funds on your own can get exhausting. Also, you need to have sound knowledge about the market and its functioning. Investors having a deeper understanding of the equity market might be able to manage funds on their own, but it’s not everyone’s cup of tea.

• Mutual fund companies have designated fund managers, who with their years of industry experience, purchase and sell securities. Someone oblivious to the market’s functioning too can invest through mutual funds.

• Mutual funds can be an ideal start for someone who doesn’t possess stock market knowledge.

• Mutual fund investments held over the long term have the potential to beat market volatility. Also, when you invest for the long term, you allow the money to do the hard work and potentially grow.

• Mutual funds allow investors to own stocks of various well-renowned and established companies in small quantities. Purchasing and managing shares of reputed companies can be both costly and time-consuming. With mutual fund investments, you can own shares in small amounts of different companies by investing little amount every month.

• Mutual fund investments are flexible in nature. Investors can either choose to make partial withdrawals or withdraw the entire amount from their fund, depending on the lock-in period.

In case if a fund is underperforming, investors have the liberty to terminate their investment and/or conveniently switch to another scheme depending on the various facilities offered by the scheme

What is SIP, SWP & STP?

SIP (Systematic Investment Plan)

SIP can be an ideal solution to invest in mutual funds to achieve life goals, which can range from planning the future of your children to retirement planning or any other needs. Systematic Investment Plan or SIP is a type of investment method where you can invest a fixed amount at regular intervals in a scheme. When an investor chooses to pay his/her investment amount through SIP, a fixed amount is debited from their debit account and is invested in the scheme which they’ve chosen. The best part about investing in mutual funds through SIP that one can start investing in them with an amount as low as Rs. 500 per month.

SIP investors can also make the most out of compounding. The power of compounding is nothing but interest earned on interest or profits earned on profits. The power of compounding gives your investments a chance to grow further

SWP (Systematic Withdrawal Plan)

While it’s essential to plan well for creating wealth, it is equally important to plan for additional expenses as well. That’s when SWP (Systematic Withdrawal Plan) comes into the picture, a powerful tool that works just like SIP. But here, instead of investing at regular intervals, you get to withdraw at regular intervals. The withdrawals can be customized basis of the investor’s requirement as they continue investing in a particular mutual fund scheme. SWP not only helps one withdraw money at regular intervals but the remaining invested amount after the withdrawals have the potential to grow. So this way, you can get more than what you have planned for, which in turn proves to be beneficial in the long run keeping the inflation rates in mind.

STP (Systematic Transfer Plan) 

Systematic Transfer Plan or STP is a type of plan where the amount of investment gets transferred from one Scheme to another scheme. As mutual fund investments are subject to market risk and returns are never guaranteed, an STP helps the investor to transfer investments from one Scheme to another depending on the volatility in the market. For example, if the equity market is on the collapse, an investor can transfer investments made in the equity market to debt oriented schemes. As soon as the equity market stabilizes, he can transfer the funds back to equity.

Mutual fund investments hold the potential to help an investor attain his/her ultimate financial goal. But investors should also look at other investment options in order to diversify their overall portfolio. Make sure that you manage to first identify your risk appetite before going ahead with any type of investment. Research as much as you can before deciding to invest your hard-earned money in any type of scheme.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.