NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds

Difference Between SIP, SWP and STP in Mutual Funds

Updated 11 October 2026 · Fact-checked

A SIP invests a fixed amount at regular intervals into a scheme. A SWP withdraws a fixed amount at regular intervals from a scheme. An STP moves a fixed amount at regular intervals from one scheme to another. Growth keeps profits in the NAV. IDCW pays out part of the scheme's distributable surplus.

Understand Investment Options, SIP, SWP and STP

A mutual fund gives you choices on two things: what happens to the profits, and how money goes in, out or across. These choices do not change the portfolio the fund holds. They change the cash flow you get as an investor.

First, the option. In the growth option, no payout is made. Gains stay in the scheme and show up as a higher NAV. In the IDCW option (Income Distribution cum Capital Withdrawal), the fund may pay out part of its distributable surplus. After a payout, the NAV falls by about the amount paid. IDCW is not guaranteed. The fund decides whether and how much to pay, and a payout can include a return of your own capital. Older documents call this the dividend option.

Second, the systematic plans. A Systematic Investment Plan (SIP) moves a fixed amount from your bank account into a scheme on set dates. A Systematic Withdrawal Plan (SWP) redeems a fixed amount (or units) from your scheme on set dates and pays it to your bank account. A Systematic Transfer Plan (STP) redeems from one scheme and invests the same amount in another scheme, usually of the same fund house.

SIP works through rupee cost averaging. A fixed amount buys more units when NAV is low and fewer when NAV is high. So your average cost per unit is lower than the simple average of the NAVs. It removes the need to time the market. It does not guarantee profit or protect against loss in a falling market.

Use in planning: SIP builds a corpus over years. SWP creates a regular income, for example in retirement. STP moves a lump sum gradually, for example from a liquid or debt scheme into an equity scheme, to avoid investing everything at one NAV. SWP differs from IDCW: an SWP payout is chosen by you and is mostly your redemption, while an IDCW payout is decided by the fund.

Key formulas to remember

Units purchased: Units = Amount invested ÷ NAV on that date; Use the NAV applicable on each instalment date. Units are usually allotted to three decimal places.
Average cost per unit (SIP): Average cost = Total amount invested ÷ Total units bought; This is the true average cost. It is the harmonic mean of the NAVs when instalments are equal.
Simple average NAV: Simple average NAV = Sum of NAVs ÷ Number of instalments; Compare this with the average cost. For equal instalments and varying NAVs, average cost is lower.
Value after payout (IDCW): NAV after payout ≈ NAV before payout − IDCW per unit; Total wealth is unchanged before tax. The payout is not extra return.
SWP units redeemed: Units redeemed = Withdrawal amount ÷ NAV on that date; The same rupee amount redeems fewer units when NAV is high.
Plan summary: SIP: bank → scheme | SWP: scheme → bank | STP: scheme A → scheme B; Direction of money is the quickest way to separate the three.

How to solve Investment Options, SIP, SWP and STP questions

Most questions either ask you to name the right option or plan, or to compute units and average cost. Use this method.

1Read the client need: build a corpus, earn regular income, shift a lump sum gradually, or receive payouts.
2Match the need to the tool: SIP for building, SWP for income, STP for gradual switching, IDCW for a fund-decided payout, growth for compounding.
3For a numeric question, list each date with its NAV and amount.
4Compute units for each date as amount ÷ NAV. Keep three decimal places if the options need it.
5Add all units and all amounts. Divide total amount by total units to get average cost.
6If asked about the simple average NAV, add the NAVs and divide by the number of dates. Compare the two.
7For IDCW, subtract the payout per unit from the NAV to get the ex-payout NAV.
8Check the options for traps such as guaranteed returns, the wrong direction of transfer, or the simple average used instead of the true average cost.

Quickest way: Direction and payout shortcut

When to use it: Use for conceptual questions that ask you to identify the plan, option or suitability.

Ask where the money starts and ends. Bank to scheme is SIP. Scheme to bank is SWP. Scheme to scheme is STP.
Ask who decides the payout. If the fund decides, it is IDCW. If you decide, it is SWP.
If gains are left in the scheme, it is growth.
For SIP numbers with equal instalments and NAVs that fall and rise, expect average cost below the simple average NAV. Eliminate options that show the reverse.
Reject any option that promises assured income or assured profit.

Common mistakes in Investment Options, SIP, SWP and STP

Treating IDCW as guaranteed regular income.
The word 'income' in the name suggests a fixed payout.
Fix: Remember that IDCW depends on distributable surplus and the fund's decision. It can be zero, and it can include capital.
Thinking an IDCW payout is a gain on top of the investment.
The cash received feels like extra return.
Fix: NAV drops by about the payout per unit. Total value is unchanged before tax.
Mixing up SWP and STP.
Both involve a systematic redemption.
Fix: In SWP the money goes to your bank. In STP it goes into another scheme.
Using the simple average of NAVs as the average cost in a SIP.
It is quicker to calculate.
Fix: Always divide total money invested by total units. That gives the true average cost.
Believing SIP guarantees profit or protects against loss.
Rupee cost averaging is often described as a benefit without its limits.
Fix: SIP reduces timing risk. If the market keeps falling, the investment can still show a loss.
Saying SWP only works in the growth option.
Students link systematic withdrawal only to units redeemed from growth.
Fix: Know the standard use: SWP redeems units and pays you a chosen amount. Read the question for any option stated, and answer from what it states.

Worked examples

Example 1

An investor starts a monthly SIP of ₹5,000 for three months. The NAVs on the three dates are ₹20, ₹25 and ₹10. Find the total units bought and the average cost per unit.

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 = 5,000 × 3 = ₹15,000.
Average cost = 15,000 ÷ 950 = ₹15.79 (approx.).
Simple average NAV = (20 + 25 + 10) ÷ 3 = ₹18.33, which is higher than the average cost.

Answer: Total units = 950. Average cost per unit ≈ ₹15.79, lower than the simple average NAV of ₹18.33.

Example 2

A client holds 1,000 units of a scheme in the IDCW option. The NAV is ₹40. The fund declares IDCW of ₹4 per unit. What cash does the client receive, and what is the approximate NAV after the payout?

Show the solution

IDCW received = 1,000 × 4 = ₹4,000.
NAV before payout = ₹40.
NAV after payout ≈ 40 − 4 = ₹36.
Value of units after payout = 1,000 × 36 = ₹36,000.
Total wealth = 36,000 + 4,000 = ₹40,000, equal to the value before the payout (1,000 × 40).

Answer: The client receives ₹4,000 and the NAV falls to about ₹36. Total wealth is unchanged before tax.

Exam tips

Write the direction of money for SIP, SWP and STP on your rough sheet before you start. Most identification questions then take seconds.
In SIP calculations, compute units for each date and divide total money by total units. Do not use the simple average of NAVs.
Treat any option with 'guaranteed', 'assured' or 'risk-free' attached to IDCW, SIP or SWP as a trap.
On negative marking: X-A wrong answers cost 25% of the marks for that question, and 2-mark caselet questions cost more. Do the calculation carefully rather than guess.
In caselets, match the plan to the client's goal and horizon. Corpus building suggests SIP, regular income suggests SWP, and a lump sum going into equity gradually suggests STP.

Practice questions from Mutual Funds

Investment Options, SIP, SWP and 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

Investment Options, SIP, SWP and STP: frequently asked questions

What is the difference between SIP, SWP and STP?

SIP puts a fixed amount from your bank into a scheme at regular intervals. SWP takes a fixed amount out of a scheme into your bank. STP moves a fixed amount from one scheme to another.

Growth vs IDCW option: which is better?

Neither is better for everyone. Growth lets gains stay invested and compound, so it suits long-term goals. IDCW pays out at the fund's discretion, with no assured amount, and the NAV drops after each payout. Choose based on the client's need for cash flow and tax position.

How does rupee cost averaging work in a SIP?

A fixed amount buys more units when NAV is low and fewer when NAV is high. Over time the average cost per unit is lower than the simple average of the NAVs. It does not guarantee profit.

Is an SWP the same as IDCW?

No. In an SWP, you choose the amount and dates, and units are redeemed. In IDCW, the fund decides whether to pay and how much, and the payout comes from distributable surplus.