STP (Systematic Transfer Plan)
In simple words, STP means transferring money from one mutual fund to another. STP is a smart strategy of investment over a specific term to reduced risks and balanced returns. Here, an AMC (Asset Management Company) permits you to put a lump sum in one fund, and transfer a fixed amount to another scheme regularly.
STP is a useful tool in mutual funds to average your investment over a specific period, which depends on three factors:
- Market view
- The risk profile of the investor
- An investor’s current allocations to equities.
Things to remember while investing via STP:
- STP is the method that requires discipline; it’s not you who gets to cook your money overnight; it will take time to cover your returns.
- It would help if you kept an eye on the underlying assets and their phases.
- STP is one of the most reliable risk-reducing investments in which you can invest.
- Go with STP only if you have a lump sum amount to invest.
- You need to make at least 6 STPSs as per the SEBI guidelines.
In short, STP is a useful strategy to manage risks without affecting your returns significantly.
SIP or Systematic Investment Plan
A SIP (Systematic Investment Plan) is an ideal way of investing in mutual funds. It allows you to invest in regular intervals. It is also called the “planned way of investing.” It helps investors to cultivate a habit of saving and accomplish the goal of wealth creation.
Through SIP, you can invest in a quarterly, monthly, or weekly basis as per your convenience. A fixed amount is debited from the policyholder’s account and invested in mutual funds. As you start investing a pre-decided number of units get allocated as per the current market price. Besides, mutual funds plans are flexible in nature, and you also have the option to discontinue it whenever you wish. However, you make the most out of Mutual Funds investments, remember to stay invested for a long period.
Benefits of SIP:
With SIP, you can start investing with a small amount and acquire significant returns. It’s a simple and convenient way to track your investment. It also brings financial discipline. Let’s look at some of the examples of investing through SIP:
1. Higher returns than RD (Recurring Deposit)
When compared to Recurring Deposit (RD), investing in Equity Mutual Funds via SIP is a better option as it helps you to earn higher returns due to the exposure of equity. Returns on RD is between 4%-8% whereas with SIP in Mutual Funds you can make profits anywhere between ~9%-15% and even above.
2. Power of Compounding
SIP is a beneficial option when compared to One-time investment because it helps you to leverage the advantage of Compounding, which ensures better long term benefits.
3. Convenience
Most of the bank accounts like Fixed Deposits would want you to invest one time and that too a larger amount. However, with SIPs in Mutual Funds, you can start your investments with as small as 100/-. This option is affordable and well appreciated by many investors.
4. Become a disciplined investor
With SIP, you would have to invest in regular investments. It helps in maintaining a healthy financial routine because you know that a minimal portion of your income would go for your investment every week, month, or quarter. Such investments would make you more disciplined when it comes to managing your funds or finances.
5. Helps in reducing the risk
If you were to invest your money one -time in mutual funds, the entire fund would have to go through the ups and downs of the market, which could either give you profits of terrifying loss. However, when you regularly invest through SIPs, only a portion of your investments would have to face the low market whereas the other portions of your investment might get to meet the better cycles of the market, meaning your investment gets divided into various periods of the market thus preventing exposure to a terrible loss.
Wondering how to invest through SIPs?
Fisdom is one such platform where you can build wealth via SIP (Systematic Investment Plan), and you can access to a variety of funds that are tailor-made and customized for your financial needs- a one-stop destination for all your investments. All you need to do is complete you’re online, paperless KYC (Know Your Customer ) process, which takes less than 5 mins, and you’re all set to start your investment journey.
SWP (Systematic Withdrawal Plan)
A systematic withdrawal plan is where you can redeem your investment from a mutual fund scheme in an orderly manner. It makes you withdraw money in installments. Come to think of it; it’s the opposite of SIP. In SIP, you channelized your bank account savings into the mutual fund scheme. Where in SWP you channelized your investment from scheme to the savings bank account.
Why is the systematic withdrawal plan a good investment option?
There are two main reasons:
- The withdrawals are referred to as redemptions and are not subject to tax deductions.
- You may also opt for setting up your withdrawal in such a manner that you only draw the appreciation made on the investment amount.
The withdrawal option:
You can access a specific amount from your investment on either a monthly or a quarterly basis. Also, you may withdraw only the appreciated amount on a monthly or quarterly duration.
Investment is an art, and not everybody has this skill. Investing in mutual funds is the best option, wherein you can yield returns on your money. You can invest your money via Fisdom , which gives you the platform to invest your money into the mutual funds for absolutely No Commission and No Fees. Thus you can earn better returns rather than putting your money in a savings account and getting just 4% interest on it.
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