SIP or SWP: Which plan is best for guaranteed income? Learn the best way to earn regular income from mutual funds..

If you invest in mutual funds and want a fixed income in the future, you have two great options: SIP and SWP. People often hear these two names, but they don't understand their fundamentals or how they work. These two schemes are quite different from each other.

If you're also confused about which of the two, SIP (Systematic Investment Plan) and SWP (Systematic Withdrawal Plan), is best for you, we'll provide you with complete details. After reading this, you'll be able to easily decide whether you want to deposit money or earn a regular income from your deposited funds.

SIP and SWP are similar names but completely different in their functions

Whenever it comes to investing in mutual funds, the first word that comes to mind is SIP (Systematic Investment Plan). SIP is a method through which you deposit a small amount every month and build a large corpus over a long period of time.

But have you heard of SWP, or Systematic Withdrawal Plan? Even if you have, do you know what it is and how it differs from SIP?

In fact, both SIP and SWP can prove to be two of the most important tools in your financial planning. The only difference is that SIP is designed to accumulate wealth, while SWP is designed to generate regular income from the accumulated wealth.

What are SIP and SWP? Say goodbye to the confusion
People often get confused between SIP and SWP. They don't understand which is better for their investment. So, let's put an end to this confusion today and understand the difference between the two and when you should use which one so that your money works best for you.

SIP: A drop-by-drop fills the ocean
SIP stands for Systematic Investment Plan. In this, you invest a fixed amount every month (or at a fixed time) in a mutual fund scheme of your choice.

What are the benefits?
Habit: It helps you develop the habit of regular investing.

Compounding: The profits earned through SIPs are reinvested. This is called compounding. This allows your money to grow rapidly. It's like earning interest on interest.

Low Risk: In SIPs, you buy at every market level, reducing the risk of market fluctuations.

Best for:
It's best for young people with money, employed people, or those who want to build a large corpus for future needs, such as children's education, marriage, or building their own home. Simply put, it's the best way to build and accumulate wealth.

SWP: A way to earn a 'steady monthly income' from your savings
SWP stands for Systematic Withdrawal Plan. It's a great option for mutual fund investors, especially those who need regular income.

In this plan, you can withdraw a fixed amount from your savings (Lump Sum Fund) every month or every three months.

What are the benefits:

Steady Income: This scheme is especially beneficial for retired individuals, as it ensures a regular income.

Principal Safe: Its biggest advantage is that you continue to receive a source of income without losing your original investment. This means you can receive a fixed income every month without having to touch your money.

Tax Benefits: If you withdraw money from an equity fund after one year, you can benefit from the Term Capital Gains Tax rules.

Who's Best For
For those who already have a substantial corpus and now need a fixed income to cover their monthly expenses, an SWP is ideal. Simply put, it's a great way to generate regular income from your savings. It works like a pension after retirement.

Your Needs Will Determine the Option for a SIP or SWP
So, the question now is whether a SIP or SWP is best for you.

If you're young and want to build a substantial corpus over the long term by investing a small amount each month, a SIP is for you. It offers the tremendous benefits of compounding.

If you have already invested money and now need a fixed monthly income from that fund, such as when you're retired, an SWP is best for you. It provides a source of regular income.

Both are mutual fund money-making options. Both are used for different financial goals. SIPs grow your money, while SWPs provide regular income from that increased money. Therefore, choose wisely based on your needs and goals.

Disclaimer: This content has been sourced and edited from Dainik Jagran. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.