Lesson 3 of 3 · 6 min
STP and SWP: the other two pipes
An STP moves money between funds in stages and an SWP pays it out in stages. Both are plumbing, not products, and both have a catch worth knowing.
The same automation runs in two other directions. An STP — systematic transfer plan — moves a fixed amount from one scheme to another at intervals, commonly from a liquid or debt fund into an equity fund, spreading out the entry instead of moving a lump sum in one day.
An SWP — systematic withdrawal plan — sells a fixed amount of units at intervals and sends the money to your bank account.
| What to compare | SIP | STP | SWP |
|---|---|---|---|
| Money moves | Bank → fund | Fund → fund | Fund → bank |
| Typical use | Building up from salary | Spreading a lump sum into equity over months | Drawing from a corpus in retirement |
| Each instalment is | A purchase | A redemption from one scheme plus a purchase in another | A redemption |
| The catch | Only works if it survives crashes | Every transfer can trigger capital gains tax and, sometimes, an exit load | Selling units into a falling market shrinks the corpus faster |
The SWP catch deserves a second look. Each withdrawal sells units at that day's NAV. When the NAV has fallen, the same ₹10,000 withdrawal consumes more units — so a long fall early in a withdrawal phase can shrink a corpus much faster than the "average return" suggests.
The order of good and bad years matters once money is flowing out. The risk course digs into this properly.
Myth
“"Start an SWP and enjoy a guaranteed income from the market every month."”
False
An SWP is a standing instruction to sell your own units — nothing more. The money that arrives is your money, sold at whatever the NAV is that day. If the fund falls and withdrawals continue, the corpus depletes and the payments stop when the units run out. Anyone marketing an SWP as an assured income is describing your own savings being returned to you, with risk attached.
Quick check
You set up an STP moving ₹20,000 monthly from a liquid fund to an equity fund. What is each transfer, legally?
Just for you
Automation removes decisions from your future self. Which money decision of yours would benefit most from being made once, in advance, instead of every month?
This stays in your browser and is never sent anywhere — not to us, not to anyone. It disappears when you leave the page.
Match them up
The three pipes, and two words that go with them
Pick a term, then pick what it actually means.
Pick a term on the left.
Check yourself
1 / 3
Kabir asks
Each ₹20,000 STP transfer from a liquid fund into an equity fund is, legally, what?
Done reading?
Saved in this browser — and finishes the course.