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What is the difference between SIP and SWP?

Mr. C.S. Sudheer | Posted On Friday, July 04,2008, 08:32 AM

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What is the difference between SIP and SWP?




My dear readers, I discussed on SIP in my earlier article. Today, I would like to give you the complete picture of different benefits, which can be availed from proper planning of SIP and SWP.

Difference between SIP and SWP:

As I discussed in my earlier article on SIP, systematic investment plan allows investors to save a fixed amount of rupees every month or quarter for the purchase of additional units in a fund.

SWP or systematic withdrawal plan allows an investor to get back his investment amount plus its returns in regular intervals over a period of time. In simple, I call it as a tool to avoid spending money, because SWP restricts an investor from withdrawing all his investments at a time and thereby, it helps an investor to avoid unnecessary expenditures.

SWP works well in case of ELSS SIPs. If you are investing in ELSS schemes through SIPs, you can take back your first investment amount only after 36 months, 2nd after 37th month from the date of commencement and 36th month from the date of investment and so forth. Therefore, the investment you made over a period of 36 months can be taken back in lump sum only after 72 months. But if you register for SWP, your investment amount plus returns of respective installments will be credited to your bank account in regular intervals soon after completion of 36 months from the date of investment of each installment.

I observed many of my clients that they have the misconception of making profits from the market movements through SWP. I can say that, it helps you to reduce the risk of redemption only. SWP will not maximize the returns in any situation.

SWP works as a pension plan, where one can invest certain amount of money in regular intervals while earning and he can take back through SWP in regular intervals after retirement. Therefore it is one of the better option for retirement planning also.

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