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Serving the investor Β· 7 min

SIP, SWP and STP

Automating the good habits

The three systematic plans turn good intentions into automatic behaviour, which is why they matter so much in ongoing service, and why the exam keeps returning to them.

A SIP, the Systematic Investment Plan, invests a fixed amount at regular intervals. Its quiet power is rupee-cost averaging: the same sum buys more units when prices are low and fewer when they are high, so the average cost smooths out and the investor is spared the impossible job of timing the market. A SIP can start fresh or feed an existing folio, is usually funded by NACH, a standing instruction or a One-Time Mandate, and can be grown over time with a SIP Top-Up (a periodic increase by a fixed amount or a percentage). One detail to remember: a minor’s SIP runs only until the minor turns 18.

The mirror image is the SWP, the Systematic Withdrawal Plan, which redeems a fixed amount at set intervals, ideal for a retiree who wants a monthly income without selling everything in one go at a market low. The STP, the Systematic Transfer Plan, combines both ideas: it is a SWP out of a source scheme and a SIP into a target scheme of the same fund house, the classic use being to move a lump sum from a debt fund into equity in measured steps. Two exam points ride on the STP. First, each transfer is a redemption from the source, so exit loads and capital-gains tax can apply. Second, and counter-intuitively, the scheme’s minimum investment and redemption limits do not apply to an STP. Finally, keep the vocabulary straight: a single transfer between schemes is a switch; a series of them is an STP.

  1. 1

    A SIP (Systematic Investment Plan) invests a fixed amount at regular intervals, which spreads the cost of buying, known as rupee-cost averaging.

  2. 2

    A SIP can be started fresh or added to an existing folio, funded by NACH, standing instruction or an One-Time Mandate; a minor's SIP runs only until the minor turns 18.

  3. 3

    SIP Top-Up increases the instalment periodically, by a fixed amount or a percentage, to keep pace with rising income.

  4. 4

    A SWP (Systematic Withdrawal Plan) redeems a fixed amount at set intervals, useful for regular income while avoiding a one-time exit at a market low.

  5. 5

    An STP (Systematic Transfer Plan) moves money in steps from one scheme to another of the same fund house, effectively a SWP out of the source plus a SIP into the target.

  6. 6

    Each STP transfer is a redemption from the source, so exit loads and capital-gains tax can apply, but the scheme's minimum investment and redemption limits do not apply to an STP.

  7. 7

    A single one-off transfer between schemes is a switch; a series of transfers is an STP.

Rupee example

Nervous about investing β‚Ή6 lakh into equity at once, an investor parks it in a debt fund and sets an STP of β‚Ή50,000 a month into an equity fund. The money enters equity gradually over a year, smoothing the entry price, while the rest keeps earning in debt.

Practice

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Real exam format. Answer by voice, tap, or press 1 to 4. No negative marking, so always attempt.

The main benefit of a SIP is:

By investing a fixed amount regularly, a SIP buys more units when prices are low and fewer when high, averaging the cost over time.
A SIP does not guarantee returns, avoid tax, or remove the KYC requirement.

A Systematic Transfer Plan (STP) moves money:

An STP transfers money gradually between two schemes of the same AMC, a SWP from the source and a SIP into the target.
It is not a bank withdrawal, a cross-AMC transfer, or a move to a deposit.

Which statement about an STP is correct?

Minimum investment and redemption limits are waived for STPs. However, each transfer is a redemption from the source, so exit loads and tax can still apply.
STPs are not tax/load free, are within one AMC, and can be stopped.

A minor's SIP is registered only:

A minor's SIP runs only up to the date the minor turns 18, after which the folio must be updated to major status before transactions continue.
It is not capped at a year, tied to the guardian's life, or perpetual.
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