SIP vs SWP Investment

Comparing SIP and SWP Investment Strategies in India

Systematic Investment (SIPs) and Systematic Withdrawal Plans (SWPs) are the trend of the town in India. Both comes with different features and it’s none matching neither mixing. This Systematic Investment Plans (SIPs) is the most favoratted mode in which you invested regular amount on monthly to mutual fund of equity linked saving schemes (ELSS) Else means minute to both of terms means that SWPs ocean’s from mutual fund market Sensex to market such as equity-linked saving schemes like share market, means systematic investment and investment from your holding or fund something same like SIP but SWP desis means you withdraw a fixed amount at a give amount of time prelinatry decided. absolutely, in this article I have clear and explains with Indian policies, regulations and mutual funds accreditions.

Understanding SIP and SWP Investments

With a Systematic Investment Plan (SIP), one can buy a fixed amount of money into a mutual fund scheme, either once a month or once every three months. This essentially helps you average the price you pay for yourself for a financial quarter or a year, and thus helps you even out the market volatility. SIPs are extremely suitable to those among us who are regular income earners and want to save a part of their income for the long term.

However ,on other hand Systematic Withdrawal Plan (SWP) is type of facility which you get from mutual fund through which you can systematically withdraw amount from your investments . Interestingly the amount is usually withdraw at regular interval of month or quarter . this type of facility is common for investors those who want regular income from their investment. in another word investors who want some short term goal can by using this type of facility for any equity or debt fund they have invested.

Policies and Regulations Governing SIP and SWP Investments

Hence SIP and SWP both are bound by strict rules, rather regulations of SEBI on investments (Securities Exchange Board of India). So to protect the interest of investors SEBI spelled out some of its rules which are briefly listed here:

1. Anyone interested in investing was required to provide copies of personal identity and address of their proof. This was called Know Your Customer (KYC) process. Fund managers needed to maintain a list about their subscribers and the investments made by them in their mutual fund schemes. Investors could invest in mutual funds only through Systematic Investment Plan (SIP) or Systematic Withdrawal Plan (SWP) whenever they needed after undergoing the KYC process.
2. Amount of investment in least and amount of SIP arrived The least amount of investment in SIP is ₹500 per instalment by SEBI. Minimum amount of withdrawal for SWPs that is concerning mutual funds by person to person.
3. Nomination Facility: You may nominate a person as the beneficiary and your death will trigger a faster method for paying out assets to the beneficiary.

Comparing Return Rates: SIP vs SWP

Returns on SIPs and SWPs depend on the performance of the underlying mutual fund scheme but there are some differences:

• Moreover, rupee cost averaging smooths out the bumps inherent in markets. Regular investments enable you to buy more units of your fund when prices are lower, and fewer units of your fund when prices are higher – thereby lowering your average cost per unit calculated over a period of time.
• On the other hand, a Lumpsum WPS entails market risk, as the face value of the amount that you can break open at the time of request depends on the prevailing NAV of the mutual fund scheme then, and if the market is down when you break open your funds, you will get less than what you were expecting.

Investment Strategies: Which Is Better?

Criteria	SIP	SWP
Investment Amount	Smaller, regular investments	Large, lump sum investment
Investment Goal	Long-term wealth creation	Regular income stream
Market Risk	Lower due to rupee cost averaging	Higher, dependent on market conditions
Flexibility	High, with adjustable contribution amounts	Moderate, with adjustable withdrawal amounts
Best For	Investors with regular income	Retirees or investors seeking regular income

Tax Implications

Taxation depends on the type of mutual fund scheme held and the lock-in period: Equity oriented schemes: COMPULSORY 1 year lock-in For equity oriented schemes, if the lock-in period exceeds a year, then short-term capital gains tax will apply. Otherwise, long term capital gains are tax-free.

• Any LTCG above ₹1 lakh in a financial year is taxed at 10 per cent without indexation benefit.
• Units liquidated in less than 12 months after purchase attract STCG @ 15 per cent.

For debt-oriented schemes:

• Capital gains tax on the units, provided you hold them for more than 36 months, is 20 per cent with indexation relief (this is crucial).
• STCG If the units are redeemed within 36 months from the date of allotment, the tax is paid at the rate applicable to your slab.

There is a different kind of benefit one can grab of SIP and SWP investments depending upon the financial goal and risk appetite of the investor. For instance,if you have an intention to accumulate wealth out of your investment money, you should go for SIPs, whereas if you wish to yield regular income from your investment, SWPs are the most suitable for you. Consequently, any investor looking at investing must fix his goals for investment, determine his risk appetite, as well as look at the taxation of the investment, prior to taking a call on SWP or SIP. His best advice, irrespective of the class of investor he is, could be to his financial advisor, who will take him through his particular situation and milestones in his life.