There are three methods of systematic investing and withdrawal, mainly Systematic Investment Plans, Systematic Transfer Plans, and Systematic Withdrawal Plan. All of these serve different purposes.
Systematic Investment Plans
A SIP is a method that helps to invest small amounts of money over some time. In the long run, this helps build a corpus. When you spread investments over some time, investors can average their purchase cost, which then prevents you from committing all your money at the market peak. This maximizes returns, brings discipline to investment, and then makes investing a habit.
The frequency of SIPs can vary. You can opt for daily, weekly, or monthly installments. There are also different kinds of SIPs. A value SIP changes the installment amount based on the expensiveness of the market. This option sounds like a good plan, but toying around with the basic idea of a SIP will make it more complex. It is best to stick to an ordinary SIP, most preferably every month.
Systematic transfer plan (STP)
STPs are preferable when one needs to invest a lump sum amount. Just like a SIP, an STP would help to spread out investments over a duration, which will average out the purchase cost and also rule out the risk of entering the market at the peak. However, with an STP, you get to invest a lump sum amount in one scheme, which is mostly a debt scheme; and you can then transfer a fixed amount from the scheme to another scheme regularly. This transfer is mostly done to an equity scheme.
The basic idea behind an STP is to help the investor earn extra on the lump sum because debt funds offer better returns than a normal saving bank account would.
The investor can decide the period over which he or she wants to deploy money in the market, depending on the lump sum amount. The larger the amount, the longer the period typically is.
An STP can also be done from an equity fund to a debt fund. Thus, if you are saving for a major goal, like the education of your children or your retirement, do not sit and wait for the target date. Move your money from equity to debt well in advance.
Systematic withdrawal plan (SWP)
An SWP lets you withdraw money from a fund at regular intervals. This system is particularly well suited for retirees, who are now looking for a fixed flow of income. The scheme provides investors with a certain level of protection from the instabilities of the market. Additionally, it helps to avoid timing the market.