SIP Vs SWP: How Both Together Can Build Wealth And Give Steady Income

SIP vs SWP: SIP and SWP are two popular investment strategies designed to help you achieve your financial goals. While both involve regular transactions with mutual funds, they serve distinct purposes.

An SIP is ideal for long-term wealth creation. It encourages disciplined savings by investing a fixed amount in a chosen mutual fund at regular intervals. This approach helps average out the purchase cost over time, known as rupee cost averaging, and potentially mitigates the impact of market volatility. SIPs are suitable for investors aiming for long-term growth.

The biggest advantage of SIP is rupee cost averaging, which cushions investments against market volatility. When markets dip, investors get more units; when they rise, fewer. Over time, this balances out the cost and helps in long-term wealth creation.

Conversely, SWP is designed to provide regular income from your investments. It allows you to withdraw a fixed amount from your mutual fund at regular intervals. While it offers a steady cash flow, it’s crucial to remember that SWP withdrawals are subject to market fluctuations and the performance of the chosen fund. SWPs are particularly beneficial for retirees or individuals seeking periodic income from their investments.

With SWPs, the invested amount continues to grow while providing periodic payouts, functioning much like a pension. Another benefit is tax efficiency, as withdrawals are structured and can help reduce overall tax liability compared to lump-sum redemptions.

According to A Balasubramanian, Managing Director & CEO of Aditya Birla Sun Life AMC as quoted by CNBC TV-18, investors can build holistic financial strategy by combining SIP and SWP that not only creates wealth but also provides regular income after retirement.

Balasubramanian added that once the accumulate phase through SIP is done, investors can withdraw a fixed fixed amount periodically from their accumulated corpus.

The plus point is that even after withdrawing the amount periodically, the remaining investment continues to participate in market, getting returns on appreciation. Balasubramanian highlights that investors need not treat SIP and SWP as separate decisions.

He added that SIP and SWP should be part of a single life-stage financial plan. “For young professionals, the accumulation phase generally aligns with their working years, typically from their mid-20s to around 60. The withdrawal phase then begins post-retirement, providing a structured income stream,” he added.

Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.