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Is there any difference in return between SWP STP and SIP

Is there any difference between STP Versus SWP + SIP from returns, Fund management charges as well as from taxation point of view?

Apr 13, 2017 by Vikas, Pune  |   Mutual Fund

Yes, there will always be a difference in returns as you are investing through different methods.

SWP and STP are completely different methods and can not be compared. While SWP may provide a fixed regular return on a fixed date over a period of time. The return of the same can not be compared with STP as STP provides the benefit of rupee cost averaging as you are transferring a fixed amount periodically from one fund to the other.

The needs for choosing the SWP and STP methods are also very different. While SWP is ideal for investors looking for regular returns, STP is for investors who want to average their investment cost in the fund.

Again, SIP is for the long term and helps in rupee cost averaging and achieving your financial goals, while lump sum investing is done on a particular day and the investor gets one NAV, that is the NAV on the day he invested.

For example, you have invested a lump sum amount of Rs 5 Lakhs in a fund @ NAV Rs 15. Whereas, your friend has invested Rs 5 Lakhs through 100 SIP instalments and got different NAVs on different dates. Therefore, his average acquisition cost may be more or less than your acquisition cost of Rs 15. Moreover, you are investing in one go whereas he is investing in staggered manner over 100 month. Therefore, while you are benefiting through compounding, he is benefitting from rupee cost averaging. Therefore, of course, the returns will be very different.

Let us see a live example - A has invested Rs 3 Lakhs in Franklin India High Growth Companies 5 years back and the current value is Rs 9.11 Lakhs https://www.advisorkhoj.com/mutual-funds... and the annual return is 25.31%. Whereas, B has invested in the same fund by way of monthly SIP of Rs 5,000 over 60 months. B's fund value is now Rs 5.32 Lakhs with annual return of 23.58%! https://www.advisorkhoj.com/mutual-funds...

As you can see from the above examples the returns and final amounts are very different as the method of investing is also different. In fact, both should not be compared at all.

With regards to the fund management charges, it is same and has nothing to do with STP, SWP, SIP or lump sum investing.

Regarding taxation, please go through this article which will help you in knowing in details about taxation on mutual funds in details - https://www.advisorkhoj.com/company/Peerless-Mutual-Fund...

Hope the above clarifies your doubts. Thanks :)

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