SIP is Systematic Investment Plan where an investor invests a fixed amount at regular interval of time. One can invest every month or quarter or year. This in turn makes sure that more mutual fund units are bought when the prices are low and less units are bought when the prices are high. This benefit is called rupee cost averaging approach.
SIP also offers the power of compounding. This means that the interest earned on SIP can be reinvested to earn more returns in the long term. An investor can start investing in SIP with as low as Rs 500 and an auto debit facility is available when investing through SIP online. This means that a fixed amount gets debited from your investment linked bank account at a regular interval of time.
Also Read — How to Invest 10000 Rupees in India?
SWP (Systematic Withdrawal Plan) is a facility to withdraw money from your mutual fund investment at a regular interval of time. The investor can take the decision of how much and how frequently he wants to withdraw the money. Periodically the amount gets credited to the investors bank account if SWP is done online. SWP can be set up to meet expenses or to reinvest in another portfolio. One can choose to just withdraw the gains keeping the principal amount invested. Even in SIP there is a benefit of rupee cost averaging as you redeem the money at regular intervals. This means that when the markets are performing well, lesser units will be redeemed compared to the times when the markets are not performing well.
Summing up
Channeling your savings into a preferred mutual fund scheme is called SIP. Whereas, in SWP the investor withdraws money periodically from the mutual fund investment made.
Tarrakki — Towards prosperity
