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April 2024
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Introduction
One of the most common investment options available to the public in India is mutual fund investing. In addition to lump-sum investments, one can use a variety of systematic procedures with money, such as SIP, STP, SWP, etc. Investors who are unfamiliar with these ideas or the distinctions between Systematic Investment Plan (SIP), Systematic Transfer Plan (STP), and Systematic Withdrawal Plan (SWP) may be confused by the terminologies. So, in this blog, we will explain these terms and discuss the key differences between SIP and STP. Read on! Systematic Investment Plan: What Is It? SIP is a disciplined investment strategy in which a person makes periodic fixed investments in their selected mutual fund scheme. These intervals can be monthly, fortnightly, quarterly, or any other frequency type that is currently accessible. SIPs are regarded as a goal-based investment strategy because they are frequently cited in equity mutual funds. It offers fantastic opportunities for people to invest in the equity markets with as little as Rs. 500 (or, in some situations, Rs. 100). Before making an investment decision, it is advised to look over the list of the top SIP plans. Systematic Withdrawal Plan: What Is It? In contrast to a systematic investment plan, a systematic withdrawal plan, or SWP, operates. Individuals are permitted to redeem fixed sums from mutual fund schemes under the SWP method. The investor first buys a few units of a mutual fund scheme that typically has low risk (mainly liquid funds) while using the SWP technique. They then provide instructions for the regular redemption of a fixed sum from these schemes. As directed, SWP in mutual funds can be carried out weekly, monthly, or every three months. Most retirees who require a consistent income prefer this strategy. Systematic Transfer Plan: What Is It? A systematic transfer plan allows investors to give mutual funds permission to systematically transfer a specified sum or redeem specific units from one scheme and invest in another scheme from the same mutual fund house. So, an amount or number of units chosen by an individual investor is moved from one mutual fund scheme to another regularly. As a result, this capability aids in the deployment of money at regular intervals. In other words, this is an automatic method of shifting money from one mutual fund to another. This plan is ideal when an individual wishes to invest a large sum yet wishes to minimise market timing risk. Difference Between a Systematic Investment Plan and a Systematic Transfer Plan While both STP and SIP entail regular contributions to equity mutual funds, the money for SIP comes from your bank account, whereas the money for STP comes from your debt fund. Also, since you are receiving returns from your debt fund, STPs provide larger yields than SIPs. Debt funds do not have the same solid rate of return as equity funds. But they generate decent returns of roughly 8% and are similarly immune to market volatility. You get the benefit of debt fund returns with STP. In the case of a systematic investment plan, the bank account offers a relatively low-interest rate. Therefore, you do not gain from that. Third, SIPs are typically unrestricted. The investment period is not predetermined. You are free to make withdrawals whenever you want and invest for as long as you wish. STPs are an exception to this. Both the quantity and the duration of the transfers are regulated. You must select the duration of the transfer, such It can be any numbers of Months. Final Words Inbest offers a range of systematic approaches, including SIP, STP, and SWP. A systematic investment plan is ideal for disciplined equity investments, while a SWP suits those seeking regular income. On the other hand, STP allows for strategic fund transfers. Each has its own unique characteristics, making it essential for investors to understand their goals and risk tolerance before choosing the most suitable option for their financial journey.
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