Systematic Investment Plan [SIP]: So, SIP is a way to invest. You are paying same amount of money here, let’s say, every month in your mutual fund. And, this amount of money will go into these mutual funds.So, Systematic Investment Plan – SIP. I yearly charges: almost the same yearly charges you pay in equity scheme and you pay almost the same yearly charges in debt schemes also. Reason is, it is amount you are paying at end of year or at the time of buy or sale. It is nothing but amount your mutual fund is paying to you, i.e., management or annual charges of the fund can be as low as 0.25% and as high as even 3.0%. SIP advantage: SIP advantage is called the rupee cost averaging. Rupee cost averaging is nothing but, because, every month or time you pay the same, so you are buying more number of units when price of that fund unit is lower or less, and you are buying less number of units when the price of units are more. At the last, your average price of purchase will come out as a good average of price and cost.
Systematic Withdrawal Plan (SWP): An SWP enables an investor to take out a specific sum quarterly or monthly from her/his mutual fund investment. As the name itself suggests, this is done for creating cash flows to meet one’s wants and needs (such as when one retires) or for any other individual cash needs.
SIP Calculator Also known as: Systematic Investment Plan calculator Here’s how it works: now rate of returns will determine the benefit that you will receive in the end. The SIP calculator computes the amount you would get at that point of time. This calculator is significant for those who want to open an SIP, as financial experts recommend investing through SIP to generate regular incomes and get a certain guaranteed amount. Hence, it becomes crucial for a purchaser to understand the information before they make the investment decision. This calculator will provide all the details and features related to such purchases.
SWP Calculator: Calculates the interval or viability of a systematic withdrawal from an investment in a mutual fund. It includes the amount with which you are investing, the sum you are withdrawing, the frequency and the yield rate.
SIP Norms: SEBI mandates complete disclosure regarding the returns and risks attached to SIPs.
SWP Regulations: SEBI regulates SWP under the mutual fund regulations which prescribes the respective impact of withdrawals on the overall investment corpus.
For instance, major companies in India, such as SBI Mutual Fund, HDFC Mutual Fund and ICICI Prudential, provide both SIP and SWP schemes based on pre-determined norms, and have online SIP calculators on their website that assist you to plan your investments.
The table below illustrates the comparison of returns for a SIP and SWP over the span of ten years, with an initial investment amount of 10,00,000 INR , on a monthly investment/withdrawal of 10,000 INR.
The table below shows the potential growth of a SIP with an expected annual return rate of 12%.
| Year | Total Investment (₹) | Estimated Returns (₹) | Corpus Value (₹) |
|---|---|---|---|
| 1 | 1,20,000 | 7,800 | 1,27,800 |
| 2 | 2,40,000 | 32,580 | 2,72,580 |
| 3 | 3,60,000 | 74,708 | 4,34,708 |
| 4 | 4,80,000 | 1,25,565 | 6,05,565 |
| 5 | 6,00,000 | 1,86,677 | 7,86,677 |
| 6 | 7,20,000 | 2,59,742 | 9,79,742 |
| 7 | 8,40,000 | 3,46,553 | 12,06,553 |
| 8 | 9,60,000 | 4,49,006 | 14,49,006 |
| 9 | 10,80,000 | 5,69,106 | 16,99,106 |
| 10 | 12,00,000 | 7,08,295 | 19,08,295 |
Table below illustrates the amount that can be withdrawn and the residual corpus of an SWP with a realistic interest return rate of 8% p.a. 1/02/05/08/10 yrs from the purchase date.
| Year | Total Withdrawals (₹) | Estimated Returns (₹) | Remaining Corpus (₹) |
|---|---|---|---|
| 1 | 1,20,000 | 76,000 | 9,56,000 |
| 2 | 2,40,000 | 72,480 | 9,08,480 |
| 3 | 3,60,000 | 68,678 | 8,48,678 |
| 4 | 4,80,000 | 64,494 | 7,84,494 |
| 5 | 6,00,000 | 59,759 | 7,15,759 |
| 6 | 7,20,000 | 54,365 | 6,41,365 |
| 7 | 8,40,000 | 48,108 | 5,60,108 |
| 8 | 9,60,000 | 40,808 | 4,70,808 |
| 9 | 10,80,000 | 32,134 | 3,71,134 |
| 10 | 12,00,000 | 21,868 | 2,60,868 |
SIPs and SWPs are both simple solutions, yet they offer unique benefits and should be used differently depending on the financial goal. For creating wealth over the long term, SIPs make more sense, since it’s a strategy based on discipline of investing over time, whereas with SWPs, most of the investments are done with a clear intent to have an income, for example, from your probable retirement. The choice between the two should depend upon the type of your financial goal, your risk appetite, and, of course, the investment horizon.