SIP, Top-up, Pause, STP to SWP: Five mutual fund tools every smart investor should use

Here’s a look at five tools for financial freedom every MF investor should know

In SIP Top-up facility (also known as Step-Up SIP), investors have options to increase the SIP installment at pre-defined intervals. This enhances the flexibility of the investor to invest higher amounts during the tenure of the SIP. This feature is ideal for salaried individuals or anyone expecting regular income growth.

If you start a SIP of ₹20,000/month with a ₹5,000 annual top-up, your contribution will rise to ₹25,000 in the second year, ₹30,000 in the third, and so on.

SIP Pause facility allows investors to pause their existing SIP for a temporary period, without discontinuing the existing SIP and SIP would restart from the immediate next installment after completion of the pause period specified by the investor.

An STP allows you to automatically transfer a fixed amount from one mutual fund scheme to another at regular intervals, typically from a debt fund to an equity fund, or vice versa, within the same mutual fund house. Instead of investing a lump sum all at once, you park your money in a relatively safer fund (like a liquid or debt fund), and gradually move it into a target fund (like an equity fund).

The SWP facility allows the investor to withdraw a specified sum of money periodically from their investments in the scheme. An SWP is ideal for investors seeking a regular inflow of funds for their needs, especially retirement. A fixed sum will be paid to the investor from their investments, and the remaining part of the corpus will continue to earn returns.