What is the difference between SIP, STP and SWP?

Understand the difference between SIP, SWP and STP if you are new to investing in mutual funds. Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), and Systematic Transfer Plan (STP) are all different methods of systematic investing in mutual funds and withdrawal. They inculcate financial discipline in the investor. The differences between the 3 modes can be illustrated as under:

Systematic Investment Plan (SIP)

An SIP is an option of investing a fixed sum in a mutual fund scheme at predefined regular intervals generally per month. It is similar to regular saving schemes like a recurring deposit.
You can invest every month or quarter or year, it depends on the plan you have chosen. It encourages investors to save money and in the end, they can redeem better returns.
It is a disciplined investment plan and cost averaging helps reduce impact of market volatility.
With SIP, one can build up significant wealth in long run with small but regular investments. In the long run, it can make a huge positive impact on your returns.

Systematic Withdrawal Plan (SWP)

SWP is a smart way to plan for your future needs by withdrawing amounts systematically from your existing portfolio either to reinvest in another portfolio or to meet your expenses.
SWP is somewhat the reverse of SIP. If you invest lump sum in a mutual fund, you can set an amount you’ll withdraw regularly and the frequency at which you’ll withdraw.
It is suitable for retired persons who are looking for a fixed flow of income.
SWP helps investors who require liquidity as it allows them to access their money precisely when they need it.

Systematic Transfer Plan (STP)

STP is a plan that allows the investor to give a mandate to the fund to periodically and systematically transfer a certain amount/ number of units from one scheme and invest in another scheme.
STP plan is chosen when one wants to invest a lump sum amount but wants to avoid the marketing-timing risk. The most common and sensical way of doing STP is to transfer money from a debt fund to an equity fund.
This helps ensure that your money is unaffected by any market volatility in short term.

Happy Investing!