SIP STP SWP

Tools for smart

investing
What’s Inside-

Systematic Investment Plan (SIP) - It is not necessary that one has to “Start big” to “End
big”

Systematic Withdrawal Plan (SWP) - It is not that difficult to generate “steady

m monthly income”

Systematic Transfer Plan (STP) - It is not difficult to invest a large sum

even “in volatile market”

SIP/SWP/STP – Tax aspect

SIP/SWP/STP – Effective retirement planning

Systematic Investment Plan (SIP): What is the basic mantra

It is not necessary that

one has to “Start big”
to “End big”
SIP: Your friend in need

How does it work

What is it It allows a person to invest a
A disciplined way of predetermined amount for a fixed
investing in mutual funds interval in mutual funds. The amount
and works on the basic will be automatically deducted from
principle of regular the bank account on a chosen date
investment
What are the frequencies What is the minimum
covered Investment amount
SIP can be done on daily, It is not necessary to start the
weekly, monthly, and even SIP with a large amount. It
quarterly basis can be started with as low
as ₹ 1000
SIP: Advantages

Discipline
It allows you to invest a fixed
amount at regular intervals
for a specified period which
Power of compounding
helps in building a portfolio
The longer one remains
invested higher would be
the returns
Rupee cost averaging
The average investment
cost comes down because
investor passes through all
phases of the market Convenience
Hassle-free mode of
investment as amount gets
debited automatically with
Lower transaction cost NACH/ Auto Debit
Transaction cost for instructions
investment via SIP is far
lower compared with
investing directly in equities
SIP: Inflation reduces value of money

To achieve the
required corpus To achieve the
through SIP required corpus
mode through SIP
mode

To achieve the
required corpus
by one time
investment To achieve the
required corpus
by one time
Assumption: Rate of return is 15% p.a. and inflation rate is @ 7%. investment
SIP: Rupee cost averaging
SIP eliminates the need for timing the investment It allows the investor to buy more units at lower price

It smoothens the impact of market volatility The investor need not worry about how much to
invest and when to invest

SIP Investor Lump-Sum Investor SIP Investor Lump-Sum Investor

Units Units Total Investment 12,000 12,000

Month Unit Price Investment Investment
Purchased Purchased Total units purchased 121.44 113.21

1 106 1,000 9.43 12,000 113.21 Average unit price 98.81 106
2 95 1,000 10.53 Value after 9 months 13,115.70 12,226.42
3 94 1,000 10.64 Difference 889.28
4 104 1,000 9.62
5 104 1,000 9.62
6 90 1,000 11.11 At the end of 12 months, total units purchased under SIP
7 99 1,000 10.10
mode will be 121.44 & cost per unit will be ₹ 98.81. Thus, the
profit for an SIP investor from the above investment will
8 101 1,000 9.90
amount to ₹ 889.28 (₹ 13,115.70 – ₹ 12,226.42)
9 92 1,000 10.87
10 90 1,000 11.11 Assumption: In first case, ₹ 1000 is invested every month for 12
11 108 1,000 9.26 months through SIP mode while in other ₹ 12,000 is invested as
12 108 1,000 9.26 a lumpsum.
SIP: Power of compounding
Albert Einstein regarded Compound interest as the
8th wonder of the world
He famously advised that those who understand its power,
earn through it and those who do not, end up paying it

Amount Invested (per month) – ₹ 1,000 Amount Invested (per month) – ₹ 1,000

Time period – 30 years Time period – 35 years

Return – 12% pa Return – 12% pa

Total amount invested – ₹ 3,60,000 Total amount invested – ₹ 4,20,000

Maturity Value – ₹ 35.29 lakh Maturity Value – ₹ 64.95 lakh

Assumption: Rate or return in either case is

Compounding is a true companion of an investor who is disciplined. It is superior 12%. ₹ 1000 is invested every month. In the
first case investment period if 30 years
to simple interest as it earns interest on interest
while in second it is 35 years
 SIP: Start early to create a larger corpus

6.3 times
2,000,000

1,897,635
4.2 times
The more time one spends in
1,500,000
the market, the maturity

999,148
2.8 times
value of the investment
1.9 times
IN RS.

1,000,000 increases proportionately. As

504,576
1.4 times
the graph suggests, for a 5-

300,000
year SIP, the final value is 1.4

240,000
232,339

180,000
120,000
500,000 times of the principal
82,486
60,000

invested. Whereas it is 6.3

0 times for a period of 25 years
5 10 15 20 25

Amount invested (in Rs.) Maturity value (in Rs.)

The table above shows the maturity values for the monthly SIP of ₹ 1,000 at 12% for different time periods.

Assumption: Rate of return in this case is assumed to be 12%

SIPs have been one of the best investment strategies to reap long-term equity investment gains
Systematic Transfer Plan (STP): What is the basic mantra

It is not that difficult to

invest a large corpus
even “in a volatile
market”
STP: Understanding the basics

What is it How does it work

STP refers to Systematic An investor invests a lump
Transfer Plan whereby an sum amount in one scheme,
investor is able to invest usually a low-risk fund, and
lump sum amount in a regularly transfers a pre-
scheme and regularly defined amount into
transfer a fixed or variable another scheme for long-
amount into another term wealth creation
scheme

When does it make sense What should be kept in mind

When markets are volatile it It is a risk mitigation strategy
makes sense to start an STP and thus the objective is not
from debt to equity fund to maximize profit but to
instead of doing an one optimize returns
time investment in an equity
oriented fund
STP: Typical approach

Transfer n

Transfer 1

Value of Fund A Value of Fund B

decreasing over time increasing over time

Fund A Fund B
STP: Types and when it can be used
Fixed STP

Capital appreciation STP

 In capital appreciation mode,

 In fixed mode, the systematic
the initial lump sum amount
transfer amount remains
that is invested say in a debt
consistent
fund remains consistent
 Irrespective of the overall
 The capital appreciation part
market conditions, a fixed
is transferred to the second
amount is invested in the
fund say an equity fund
second fund
 This strategy works for the
 This mode is normally used
conservative investor who
when investment is transferred
wants to protect the capital
from low-risk debt to equity
and take some risk with the
funds
returns

Both the strategies can be used by the investor depending upon the requirement
STP: Final thoughts
01 Risk mitigation
strategy
Systematic transfer plan is a risk mitigation strategy which
will protect the investor from any adverse loss but also cap
the returns to some extent

02 Disciplined investing
STP like SIP will only yield the desired result if the investor
remains committed to the objective and does not
break the investment based on short-term market
movement

The investor should also understand the asset classes to some

extent and where they currently stand. When the equity
market is at its peak, it would be unwise to transfer the fund
Understanding the
03
from debt to equity, similarly when the markets are close to
asset classes and their multi-year lows, it would be counter productive to
overall markets transfer the funds from equity to debt
Systematic Withdrawal Plan (SWP): What is the basic mantra

It is not that difficult to

generate “steady
monthly income”
SWP: Understanding the basics

What should one keep in mind What is the frequency of payouts

The investor should try to Increase The frequency is generally monthly or
the withdrawal amount every year quarterly. It can also be semi-annual
to beat inflation or annual depending upon the need
of the investor

How does it work

What is it
It is technically the reverse of SIP The mechanism is just like SIP. An
wherein one invests a lump sum investor needs to instruct the asset
at the beginning and withdraws management company (AMC) to
a fixed amount at regular redeem units on a predetermined
intervals to generate a steady date and credit a fixed sum into the
stream of income. It can be bank account. The fund’s value
started in equity, debt or hybrid and number of units will reduce to
funds the extent of each withdrawal
SWP: Advantages

It provides a fixed income to the investor.

Steady flow of income It is very effective financial tool for those
looking for fixed source of income every
month, like elderly citizens

Rupee cost averaging helps the investor

in SWP plan as well. In a rising market, the
Averages out the market investor takes advantage of the
averaging out with each redemption

Withdrawal through SWP route is more

cost effective when it comes to tax
Tax efficient liability compared with a divided pay-out
scheme

SWP does not require redemption of

Partial redemption entire investment and investor can take
care of his/her financial need by partial
redemption every month systematically
without doing any paperwork
SWP: Types and when it can be used
Fixed SWP

Capital appreciation SWP

 In capital appreciation
mode, the initial lump sum
 In fixed mode, the
amount remains consistent
systematic withdrawal
 The payout is the capital
amount remains consistent
appreciation that is made
 Irrespective of the overall
due to the performance of
market conditions, a fixed
the fund
amount is credited in the
 Since the payout depends
bank account
upon the market, this mode
 This mode is important
is important when the initial
when steady flow of
corpus is more important
income is the requirement
then the monthly flow of
income

Both the strategies can be used by the investor depending upon requirement
SWP: Effective usage in different scenario

Start-up Retirement Planning Investment Strategy

 Every one wants to be an Investment in a debt

  Bonus or one time payout
entrepreneur. But before oriented mutual fund can be invested in a liquid
quitting job, regular along with other or ultra short term mutual
source of income is very instruments like bank FD fund
important Regular payouts to
  This amount can then be
 SWP is idle for this and one supplement regular used for the next six or 12
can invest in debt mutual income months
fund
SIP SWP STP: Taxation
Investment Type Comment Description

Every installment considered as fresh  Each investment has to be held for at least 12 months
SIP investment to be eligible for LTCG benefits

 If the amount is withdrawn from Debt mutual fund -

 Investment is held for <3 year, tax as per the
investor's tax slab
Investment is actually redeemed at
SWP particular interval
 Investment is held for > 3 year, 10% without
indexation and 20% with indexation
 If the amount is withdrawn from Equity mutual fund -
 LTCG is Nil if investment is held for > 1 year

 If the source fund is Debt mutual fund -

 Investment is held for <3 year, tax as per the
investor's tax slab
Investment moving from debt mutual fund to
STP equity mutual fund
 Investment is held for > 3 year, 10% without
indexation and 20% with indexation
 If the source fund is Equity mutual fund -
 LTCG is Nil if investment is held for > 1 year
SIP SWP STP: Retirement Planning
Using SIP/STP/SWP effectively for retirement planning

 Post retirement, the entire retirement  Investments done in equity mutual

corpus is in debt mutual fund due to Post-Retirement funds should be transferred
the STP option
 Instead of redeeming the entire
STP systematically into debt mutual funds
when retirement approaches
corpus at one go, the retired individual  It is necessary to reduce risk and can
can withdraw amount equivalent to easily be done through STP
their household needs through SWP  Through STP, pre defined amount will
option be transferred from equity scheme to
 SWP allows regular income during debt scheme of the same fund house
retirement through regular withdrawal SWP
and also some returns as the
balanced corpus remains invested in
debt mutual fund

Smart
Investor
 Start investment in equities early
through SIP
 Starting early will help in accumulating
SIP retirement corpus with lower monthly
Pre-Retirement
investment
 SIP gives benefit from market volatility
and accounts for “rupee cost
averaging”
SIP SWP STP: Recap
In Systematic Investment Plan, a fixed sum of money is debited from
SIP one’s bank account at a predefined frequency (weekly, bi-monthly,
monthly etc.) and invested in a mutual fund

Bank Mutual Fund

In Systematic Transfer Plan, a fixed sum of money is transferred from

STP source mutual fund (where the amount is already invested upfront)
to target mutual fund at predefined frequency on a specified date
Source Scheme Target Scheme

In Systematic Withdrawal Plan, a fixed sum of money is withdrawn

SWP from one’s mutual fund statement at a predefined frequency
(normally monthly)

Mutual Fund Bank

SWP
SIP STP
 Works well in both
 Rupee cost averaging  Rupee cost averaging
rising and falling
Advantages  Compounding in rising market
market conditions
 Allows regular  Helps in retirement
 Helps in portfolio
investment planning
rebalancing
Thank You