SIP vs SWP: Which Is Better For Your Financial Needs?

In today’s world, what we see is a growing popularity and people’s interest in various types of mutual fundinvestments. Nowadays, SIP vs SWP considered a proven method to plan your finances not only for today but for the future as well. That said, when it comes to planning the finances, SIP vs SWP are the two most commonly searched terms. 

It’s important to mention that both of them SIP vs SWP are linked to mutual funds but serve different purposes. SIP is ideal when you want to invest small amounts regularly to build wealth and meet future goals. On the other hand, SWP is useful for those who need a regular monthly income from what they have invested. 

While choosing between them completely depends on your personal financial needs, having a clear understanding of both is crucial SIP vs SWP . The question is whether you want to grow your money or use it for daily expenses. In this article, we’ll discuss SIP vs SWP in simple terms to help you make the right choice. 

What Is a Systematic Investment Plan (SIP)?

Firstly, we should take a look at what a Systematic Investment Plan or SIP is. Well, it’s a strategic way to invest small amounts of money regularly in mutual funds. You don’t have the need to pay a big lump sum amount. Instead, people can start with as little as ₹500 for each month. The money you deposit is invested in the market, and over time, it will help you build wealth. 

The reason for this is the ever-changing market scenarios. If you invest ₹500 today, it can come you as ₹50,000 in the future. That said, SIPs work best when you have long-term goals like education, a wedding, purchasing a house, or even retirement. It reduces risk through rupee cost averaging, as you invest in both rising and falling markets.  

Benefits of SIP 

Do you know that SIP comes with a lot of benefits? We’ll discuss some of them here:

• You can invest small amounts regularly. There’s no need for a big lump sum.
• You can build your wealth over the long term with small investments now.
• SIP comes with a low risk as there’s rupee cost averaging. 
• SIPs are often considered a disciplined way to save for future goals.
• Flexibility is another important benefit one can avail. You can start, stop, or change the amount anytime you want. 

Drawbacks of SIP 

While SIPs have numerous benefits, they do come with some drawbacks as well. So, what’s worth considering? Let’s have a look:

• You’ll need to invest not only money but also time and patience to see a good growth in your investment. 
• If the markets go down for a long time, then your returns could be much lower than what you might have expected. 
• Withdrawals could be tricky sometimes. This is because withdrawals need selling units.

How Does SIP Work?

Now that you know the goal behind investing in SIP, you must be curious about how it works. Here’s a simple breakdown of the steps through which SIP works:

• Firstly, you choose a mutual fund scheme that matches your goal. 
• Now, you have to decide the investment amount (as low as ₹500) and the frequency. 
• The selected amount is auto-debited from your bank account and invested in your mutual fund on the selected date. 
• The money is used to purchase units of the mutual fund at the current NAV (Net Asset Value). 
• Each time you invest, you are buying units at different prices, which leads to rupee cost averaging. 
• Eventually, the amount of your investment will increase through compounding, which is the best way to build wealth over the long term through SIP.

Who Can Benefit From SIP?

Are you also curious to know who can get direct benefits from SIP vs SWP investments benefit all if planned well. The major beneficiaries might include:

• Young professionals who want to start saving early.
• Salaried people who are looking for disciplined monthly investments.  
• Newbies who want to start investing with small amounts. 
• Those who want to build wealth slowly without taking any big risks. 
• People with long-term goals like education, marriage, or retirement.

What Is a Systematic Withdrawal Plan (SWP)?

Now, it’s time to talk about the Systematic Withdrawal Plan, or let’s call it SWP. This system is quite the opposite of that of the SIP. Here, you can withdraw a fixed amount of money regularly from your existing mutual fund investment. This means SWP becomes important for those who want a steady income every month, most likely, post-retirement.

You’re free to decide the withdrawal amount and frequency, but all you need to have is a prior investment in mutual funds. Having said that, the withdrawal could be monthly, quarterly, or even yearly. 

The remaining amount will stay in your account and will also continue to grow. However, there’s a catch in this system. Your withdrawals highly depend on the market performance, so the value of your fund could also change over time. 

Benefits of SWP 

Just like SIP, SWP also has its own benefits that interested people can avail themselves of over time. Here’s a quick look at what you get:

• It allows investors to have a steady income on a regular basis, be it monthly, quarterly, or yearly. 
• This could be an excellent option for retirees who need a fixed cash flow.
• SWPs also offer flexibility in choosing the amount value and withdrawal frequency.
• SWPs are more tax-efficient compared to fixed deposits for many.
• Even if you’re withdrawing a fixed amount, the remaining balance has the option to grow. This means you may have better returns in the future. 

Drawbacks of SWP 

Now, it’s time to take a look at the drawbacks that can come along with the benefits of SWP. Here’s what you should know:

• You must have a large amount already invested to avail the benefits of SWP.
• SWP heavily depends on the market performance. If it fails, your fund value can quickly decrease. 
• In case you opt for too many withdrawals, it may exhaust your income in no time. 
• There’s no guaranteed income as it depends on investment performance. 

How Does SWP Work?

Well, the concept of SWP is quite the opposite of what you get with SIPs like SIP vs SWP . Here’s how SWP works for beneficiaries:

• Here, you start with a lump sum investment in a mutual fund.
• Again, you have to decide the withdrawal amount and the frequency (monthly, quarterly, yearly).
• Whatever the selected date is, the fixed amount is credited to your bank account.
• To pay this amount, the mutual fund redeems some units at the current NAV.
• The remaining units stay invested, allowing your money to keep earning returns.
• SWP is suitable for retirees or anyone needing a regular income. This comes without withdrawing the entire investment at once.

Who Can Benefit From SWP?

SWP also benefits a whole different group of people. Here’s the list, including who can have benefits from SWP:

• Retired individuals who want a fixed income every month.
• People with a large corpus who are looking to withdraw in parts. 
• Investors who want to manage expenses without breaking FDs or savings.
• Anyone needing a steady cash flow while keeping money invested.
• Investors who want to manage expenses without breaking FDs or other savings. 

SIP and SWP Comparison Table 

Here’s a quick overview of how SIP vs SWP compare with each other. Though both SIP vs SWP financing methods are quite opposite, they come with money benefits sooner or later. For an easier understanding SIP vs SWP , you may go through the following table:

Conclusion: Which Is Better: SIP vs SWP?

As we sum up our journey, we come to the conclusion that both SIP vs SWP serve different purposes. So, it’ll be no wrong to say that neither is better than the other SIP vs SWP . The whole scenario depends on your financial needs. However, SIP is the best option if you want to grow your money over time by investing small amounts regularly. 

On the other hand, SWP is ideal if you already have a lump sum invested and need a regular income, most often, post-retirement. The right choice depends on whether you want to save and grow or withdraw and spend from your investments.