Gone are the days when investors had to manually visit the fund house and fill out a long form to make a simple investment in a mutual fund. Now one can invest in mutual funds from the comfort of their home or office. All they need is a smartphone or a laptop with a decent internet connection and they can start investing in mutual funds. However, one needs to be KYC compliant to build a mutual fund portfolio. Know Your Customer (KYC) is a standard procedure where one has to fill in all the basic details like age, address, nationality, etc. on a KYC form and submit photocopies of proofs like PAN card, AADHAR card, etc. to get registered with the fund house. One can even compete this procedure through eKYC. Isn’t this just simple and convenient?
Thanks to the advent in technology, there are convenient ways to invest and withdraw in mutual funds these days. With the option of SIP and SWP, one can now redeem their mutual fund units and make investments in mutual funds in a systematic manner. But what is SIP and SWP? Let’s find out
What is SIP and SWP?
A Systematic Investment Plan, abbreviated as SIP, is an easy and convenient way to invest in mutual funds. One can make small investments are periodic intervals in mutual funds through SIP. Earlier, the only way to make an investment in mutual funds was through a onetime lumpsum investment. But thanks to SIP, investors can now make small investments are regular intervals. One does not need to have a large investment amount at their disposal for as principal amount to start a mutual fund investment. With SIP all one needs to do is complete a onetime mandate with their bank following which, every month on a fixed date a predetermined amount is debited from their savings accounts and electronically transferred to the fund.
An SWP on the other, is a way to make systematic withdrawals from one’s mutual fund portfolio. Systematic Withdrawal Plan or SWP is a modern day tool that works just like SIP. But with SWP, instead of investing at regular intervals, an investor can withdraw at regular intervals. Investors can customize these withdrawals depending on their financial needs. SWP allows you to withdraw a specific amount at predetermined intervals from the amount you invested in a mutual fund.
Difference between SIP and SWP
Here are some of the major differences between a Systematic Investment Plan and a Systematic Withdrawal Plan:
|What does it do||Allows investors to invest a fixed amount at regular intervals in a mutual fund scheme||Allows investors to withdraw a fixed amount at regular intervals from their mutual fund scheme|
|Why should one consider these||SIPs may inculcate the discipline of investing regularly in an individual||SWPs help investors redeem their mutual fund units systematically for taking care of their monthly expenses|
|How does it work||Every month on a fixed date, a fixed amount is electronically transferred from an investor’s savings account to the mutual fund scheme||Every month on a fixed date, a fixed amount is electronically debited from an investor’s mutual fund and credited to their savings account|
|Ideal for||SIP is ideal for investors who wish to accumulate wealth through systematic and disciplinary investing||SWP is ideal for those who wish to get regular income to take care of their expenses|
Investors are expected to determine their risk appetite before making an investment in mutual funds. That’s because investments made in mutual funds are exposed to market volatility and hence do not guarantee any returns.
Mutual fund investments are subject to market risks, read all scheme related information carefully