2024 saw a new milestone for the Indian Mutual Fund Industry with its Assets under Management value crossing the 68-lakh crore INR mark in November. This speaks miles for the growing popularity of mutual funds as an investment tool.
Investors are visiting mutual fund apps to explore options that can help them grow their savings.
Further, to mitigate market risk, SIPs were launched. Later, the SWP was launched to ensure that people enjoy financial liquidity even when investing.
Understanding SIP
Opting for a Systematic Investment Plan (SIP) means you can start investing small amounts regularly in a Mutual Fund of your pick. A top pick for most new investors, a SIP teaches financial discipline while managing the risks of investing. Further, a SIP helps you slowly build wealth by compounding your investments.
With the help of an SIP Calculator online, investors can evaluate the risk vs. returns. This helps them pick the right plan to invest in.
People can log on to any mutual fund app and use the SIP Calculator online (which is usually free) to help decide on a mutual fund. Plus, most mutual fund apps also allow you to change the intervals, add supplementary investments, pause the investment, and more so that you do not feel burdened with financial strain.
Benefits for Investors
People investing in SIPs stand to gain the most of their savings since they:
- Are less dependent on market volatility
- Allow you to start sooner with small regular investments.
- Compound your investment to maximize your returns.
- Allow you to build long-term wealth.
- Facilitate easy fund management
- Teach novice investors financial discipline.
Why SWP is gaining popularity over SIP
With a significant volume of investors being retirees, an option that provides regular income is better than just investing. Further, some of these people have already built up wealth over the years and have little need for high returns.
To meet the demands of this section, SWP was introduced. A method by which people can invest in Mutual Funds, the Systematic Withdrawal Plan (SWP) allows people to withdraw prespecified amounts periodically from their investment.
Each withdrawal is made at pre-determined intervals from your lumpsum amount. Thus, while the interests are added to the investment amount, the withdrawals keep this at par. In investment terms, this is called the Twin Strategy.
Benefits of SWP
By opting for SWPs, people can enjoy the following benefits:
- Regular earnings from their investments.
- Easy withdrawal at fixed intervals.
- Tax flexibility in withdrawals.
- Rupee cost averaging that can prevent market fluctuations to some extent.
- Preserve the invested capital while generating income.
SIP or SWP: The Right Choice
While SIP Calculators online make it clear how much you stand to gain, one small drawback of the SIP is that the amount you invest stays invested unless you dissolve it. So what should a person do in case they suddenly require funds?
SWP addresses this issue very easily. By allowing you to withdraw small amounts regularly, SWPs help you stay liquid. However, withdrawing small amounts regularly can easily drain your investment.
Hence, deciding which investment type to opt for is a significant financial decision.
Understanding Investment with a Case Study
Let’s explore an example:
You have just started your career but you have plans to buy a small house in the next 10 years. The first step is to invest a part of your income in an SIP. An SIP Calculator online will help you decide which is the right investment plan and period for your needs.
With small periodic investments that get compounded annually, you can build up a nest egg. You can do this for 6-8 years or however long you choose. Once your investment period is over, you will be sitting on enough funds to put down a down payment on your new house.
As step two, you can invest a portion of the leftover amount after the down payment in an SWP. You can pick an annual payout amount that helps you pay off the interest on your house while keeping the rest of your money secure and growing. Further, you can also set up an additional SIP to keep your money growing.
Can these be used in tandem?
Of course. And the above scenario sheds some light on how investors can approach SIP and SWP. While SIP keeps your money growing, SWP keeps you liquid instead of tying up all your funds in investment portfolios.
One other added advantage comes when you need to exit an SIP suddenly. SIPs are designed to keep your money invested for a specific period. While you can exit it at any point, you stand to lose out on a significant amount when compared with your forecasted returns.
SWP mitigates this by allowing you to draw small amounts from your investment. This makes investing convenient for those with financial strain.
Thus, you can build up your savings with a combination of SIP and SWP. Multiple banking and mutual fund apps allow investors to build their savings with a combination of investment plans designed for significant returns as well as flexibility.
Making a smart investment call
Both options are promising for investors who want to get started with mutual funds. SIPs provide the option for piecemeal investments giving significant returns. An SIP calculator online can help you gauge how much you stand to gain from each investment.
Once you have some amount saved up, you can switch to an SWP that allows you to withdraw small amounts to supplement you.
By combining the two, you can meet your cash flow needs while growing your savings. Pick a plan that suits you best from a mutual fund app and get ready to start investment.
