NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection

Difference Between SIP, SWP and STP for NISM Exam

Updated 11 October 2026 · Fact-checked

SIP invests a fixed amount at regular intervals into a scheme. SWP withdraws a fixed amount at regular intervals from a scheme. STP moves a fixed amount at regular intervals from one scheme to another of the same fund house. To solve questions, match the investor's cash flow need to the right plan.

Understand Cash Flow Planning and Investment Strategies (SIP, SWP, STP)

Every investor has cash coming in and cash going out. Mutual fund services let you line up investments and withdrawals with those cash flows, instead of acting on one date.

A Systematic Investment Plan (SIP) is for someone who earns regularly, such as a salaried person. A fixed sum goes from the bank account into a scheme on a set date each month or quarter. It builds a corpus slowly and removes the need to guess the right time to enter the market.

A Systematic Withdrawal Plan (SWP) is for someone who has a corpus and needs regular income, such as a retiree. A fixed amount, or fixed number of units, is redeemed at set intervals. The rest stays invested. Each withdrawal is a redemption, so it can attract exit load and capital gains tax. It is not the same as a dividend or income distribution.

A Systematic Transfer Plan (STP) moves money from one scheme to another within the same mutual fund. A common use is parking a lump sum in a liquid or debt scheme and moving a fixed amount each period into an equity scheme. This spreads the entry into equity over time and reduces market timing risk. Each transfer is a redemption from the source scheme and a purchase in the target scheme, so tax and load rules apply to the source.

Rupee cost averaging is the benefit of SIP and STP. A fixed rupee amount buys more units when the NAV is low and fewer when it is high. So the average cost per unit is lower than the simple average of the NAVs. It does not guarantee profit or protect against loss in a falling market. A lump sum suits an investor who has idle money and a long horizon, but it carries timing risk because everything is invested at one NAV.

Key formulas to remember

Units allotted: Units = Amount invested ÷ NAV on the applicable date; Same amount at a lower NAV gives more units.
Average cost per unit (SIP): Average cost = Total amount invested ÷ Total units bought; This is a harmonic-type average. It is never above the simple average of the NAVs when the amount is fixed.
Simple average NAV: Simple average = Sum of NAVs ÷ Number of instalments; Compare it with the average cost to see the rupee cost averaging gain.
SIP: Money flows: bank account → scheme; Accumulation. For regular earners.
SWP: Money flows: scheme → bank account; Regular income. For investors with a corpus.
STP: Money flows: scheme A → scheme B (same fund house); Used to phase entry into equity or to shift out gradually.

How to solve Cash Flow Planning and Investment Strategies (SIP, SWP, STP) questions

Use this method for any question on SIP, SWP, STP or lump sum.

1Read the investor's situation: is the money coming in regularly, sitting idle as a lump sum, or needed as regular income?
2Identify the direction of flow: bank to scheme (SIP), scheme to bank (SWP), scheme to scheme (STP).
3Check the concern stated: market timing risk, regular income, discipline, or gradual shift of assets.
4Pick the plan that fits the need and eliminate the options that reverse the flow.
5If numbers are given, compute units for each instalment as amount ÷ NAV.
6Find the average cost as total amount ÷ total units, and compare with the simple average NAV if asked.
7Remember that SWP and STP are redemptions from the source scheme, so tax and exit load can apply.
8Re-read the question for words like 'always', 'guarantee' or 'assure' and reject options that promise returns.

Quickest way: Match the cash flow in ten seconds

When to use it: Use for scenario questions that ask which plan suits an investor.

Salary or regular surplus: choose SIP.
Retirement or regular income need from a corpus: choose SWP.
Lump sum that should enter equity gradually: choose STP from a debt or liquid scheme to equity.
Idle money, long horizon, comfortable with timing risk: lump sum is possible.
For numeric questions, divide the amount by each NAV, add the units, then divide total amount by total units.

Common mistakes in Cash Flow Planning and Investment Strategies (SIP, SWP, STP)

Saying rupee cost averaging guarantees profit or protects from loss.
Students remember the lower average cost and overlook that the NAV can keep falling.
Fix: Say it reduces the average cost and timing risk. It does not assure returns.
Confusing the direction of SWP and STP.
Both have 'systematic' and involve redemption.
Fix: SWP ends in the bank account. STP ends in another scheme of the same fund house.
Treating SWP as income distribution or dividend.
Both give regular cash to the investor.
Fix: SWP is redemption of units, so it can attract capital gains tax and exit load. Dividend is a payout by the scheme.
Averaging the NAVs to get the cost per unit in a SIP.
It looks like the quickest calculation.
Fix: Divide total money invested by total units. The simple average of NAVs is the wrong measure.
Ignoring tax and load on STP and SWP.
Students see the transfer as a switch with no consequence.
Fix: Treat each transfer or withdrawal as a redemption from the source scheme.
Recommending SIP for an investor who needs income now.
SIP is the most familiar plan.
Fix: Check the cash flow need first. Income need points to SWP.

Worked examples

Example 1

An investor puts ₹5,000 every month in a scheme for three months. The NAVs on the three dates are ₹20, ₹25 and ₹10. Find the average cost per unit and compare it with the simple average NAV.

Show the solution

Units in month 1 = 5,000 ÷ 20 = 250.
Units in month 2 = 5,000 ÷ 25 = 200.
Units in month 3 = 5,000 ÷ 10 = 500.
Total units = 250 + 200 + 500 = 950.
Total invested = 3 × 5,000 = ₹15,000.
Average cost = 15,000 ÷ 950 = ₹15.79 (approx.).
Simple average NAV = (20 + 25 + 10) ÷ 3 = 55 ÷ 3 = ₹18.33 (approx.).

Answer: The average cost is about ₹15.79 per unit, which is below the simple average NAV of about ₹18.33. This is rupee cost averaging.

Example 2

Mr. Rao, aged 62, has just retired with a corpus of ₹40,00,000 in a debt scheme. He wants a fixed monthly cash flow and wants the balance to stay invested. Which service suits him, and which one suits a different investor who has ₹12,00,000 idle and wants to enter equity gradually?

Show the solution

Mr. Rao needs regular income from an existing corpus.
Money must flow from the scheme to his bank account, with the balance remaining invested.
That is a Systematic Withdrawal Plan (SWP).
The second investor has a lump sum and fears market timing risk in equity.
The lump sum can stay in a liquid or debt scheme of a fund house.
A fixed amount is moved at set intervals into an equity scheme of the same fund house.
That is a Systematic Transfer Plan (STP).

Answer: Mr. Rao should use an SWP. The second investor should use an STP from a debt or liquid scheme to an equity scheme.

Exam tips

Most questions are scenario based. Identify the cash flow first, then pick the plan.
Reject any option that says a plan guarantees returns or removes market risk.
For SIP numbers, use total amount ÷ total units. Do it carefully, since wrong answers carry negative marking in some modules but check the paper rules; V-A has none, so always attempt every question.
Remember STP happens within the same fund house, and SWP and STP are redemptions from the source scheme.
Lump sum versus SIP questions turn on timing risk and the investor's cash availability.

Practice questions from Mutual Fund Scheme Selection

Cash Flow Planning and Investment Strategies (SIP, SWP, STP) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CA FinalSIP, SWP, STP and Scheme Comparisons

Cash Flow Planning and Investment Strategies (SIP, SWP, STP): frequently asked questions

What is the difference between SIP, SWP and STP?

SIP invests a fixed amount regularly from your bank into a scheme. SWP withdraws a fixed amount regularly from a scheme to your bank. STP transfers a fixed amount regularly from one scheme to another of the same fund house.

How does rupee cost averaging work?

You invest a fixed rupee amount each period. When the NAV is low you get more units and when it is high you get fewer. Your average cost per unit then works out lower than the simple average of the NAVs. It does not guarantee profit.

When should you use a systematic transfer plan?

Use it when an investor has a lump sum and wants to enter equity gradually. The money stays in a debt or liquid scheme and a fixed amount moves to equity at set intervals. This reduces market timing risk.

Does NISM-Series-V-A have negative marking?

No. NISM-Series-V-A has 100 questions, 100 marks and 2 hours, with a pass mark of 50% and no negative marking. So you should attempt every question.