Investors frequently ask me, “SIP or SWP – which is Better Investment Option”? In short, mutual funds create the two products for entirely different situations. A SIP creates wealth. Whereas an SWP breaks down an existing corpus into small, regular payments.
The dilemma is similar to, “What is the difference between Dividend and Growth Fund? Which is Better“? The answer is also the same. Dividend or regular income plans suit a person who has a big initial corpus and wants to live out of it. Regular income plans invest in interest paying investments like bonds. On the other hand, a growth fund is meant for creating a corpus or wealth.
Before we go deep into the differences between the two let me first explain what is a SIP and an SWP briefly.
SIP or SWP – Meanings
The word SIP stands for ‘Systematic Investment Plan’. A SIP is a plan for making small investments in a mutual fund scheme at regular intervals. Usually, the interval period is a month. Therefore a SIP is only a commitment to make a regular and periodic investment into a particular mutual fund scheme. However, it is not a type of mutual fund or investment instrument.
SWP stands for ‘Systematic Withdrawal Plan’. It is a scheme for converting a certain lump sum fund or money into a stream of small payments over a certain period of time. Again it is only a scheme designed by a mutual fund and not a separate type of mutual fund or investment instrument.
I list below links to a few interesting articles relating to mutual funds you may like to read:
- Types of Mutual Funds
- Is SIP better than a Fixed Deposit?
- Self-Investment or SIP?
- What Are the Alternatives to SIP Schemes?
- What Is the Risk of Investing in SIP?
I conclude that a SIP and SWP are antonyms. While a SIP is an attempt to create wealth, an SWP is a scheme to distribute a lump sum of money into an annuity.