Mutual Fund Investing Made Easy: SIP, STP, Step-up SIP, SWP

• Date : February 26,2026

Introduction
Think about grocery shopping in a household. Some families buy a fixed set of essentials every month. Some stock up in one big run when they find a good deal. Some split a bulk purchase into smaller weekly refills so they don’t feel the storage (or spending) shock. And when the pantry is full, they don’t empty everything at once; they take out what they need in a steady, planned way. Mutual Fund investing is similar. The mutual fund you choose is like choosing what groceries you want (rice, pulses, spices). But the method you use, SIP, STP, Step-up SIP, lump sum investment, and SWP, is about how you buy and how you consume. In this blog, you will learn what SIP, STP, Step-up SIP, lump sum investment, and SWP are, explained with easy-to-understand examples.

What are Units and NAV in Mutual Fund Investing?

When you invest in a mutual fund, you don’t buy the fund like a single item. You get units of the scheme of the mutual fund.

• The price of one unit is called NAV (Net Asset Value).
• Your money ÷ NAV = number of units you receive.

So if you invest ₹10,000 when the NAV is ₹50, you get 200 units.
If you invest ₹10,000 when the NAV is ₹40, you get 250 units.

Different methods mainly change the timing pattern of how money goes in (and sometimes how it comes out). The unit’s calculation remains the same.

SIP (Systematic Investment Plan)

What is an SIP?

An SIP is a facility where a fixed amount is invested at fixed intervals, most commonly monthly, into a mutual fund. Each installment buys units at that day’s NAV.

Instead of doing a big grocery run once, a SIP is like buying essentials on a set date every month, which is steady, repeatable, and disciplined.

How Does SIP Work?

• Investors can choose an amount (say ₹5,000) and a date (say the 5th of every month).
• On each SIP date, ₹5,000 is invested in the selected fund/funds.
• Investors receive units based on that day’s NAV.
• Over time, investors accumulate units purchased at different NAV levels.

Example: SIP unit-building over 3 months

Simple takeaway: When NAV is lower, the same ₹5,000 buys more units. When NAV is higher, it buys fewer units. Over time, this helps spread your buying price without you trying to time the market.

Step-up SIP (Top-up SIP)

What is a Step-up SIP?

A Step-up SIP is a SIP where the installment amount increases automatically at a chosen frequency, which is commonly once a year, either by a fixed amount or a fixed percentage.

If SIP is buying groceries monthly, Step-up SIP is increasing the grocery basket size, which includes healthy items and essentials every year, not abruptly, but in a planned, preset way.

How it works (mechanics)

• Investors can start with a base SIP amount.
• Investors can choose a step-up rule (example: +10% every year or +₹1,000 every year).
• Each year (or chosen interval), the SIP amount automatically increases.

Example: Step-up SIP with a fixed yearly increase

Arjun starts a SIP of ₹10,000/month and sets a step-up of ₹2,000 every year:

• Year 1: ₹10,000/month
• Year 2: ₹12,000/month
• Year 3: ₹14,000/month

Over time, his contributions grow without needing him to manually create a new SIP every year.

Example: Step-up SIP with a percentage increase

Nisha starts with ₹7,000/month and sets a 10% yearly step-up:

• Year 1: ₹7,000/month
• Year 2: ₹7,700/month
• Year 3: ₹8,470/month

The practical impact is straightforward: later years put more money to work than earlier years, which can change the outcome meaningfully over long periods.

Lump Sum Investment

What Does Lump Sum Investment Mean?

A lump sum investmentis investing a larger amount in one shot at a particular point in time, on one date, at that day’s NAV.

If SIP is repeated grocery refills, a lump sum is the equivalent of one big supermarket trolley on a single day.

How does it work?

• Investors can invest a single amount (say ₹2,00,000).
• Units are allotted at the NAV of that day.
• Investors entry price is tied to that one NAV point.

Example: Lump sum unit allocation

That’s the key: with a lump sum investment, the number of units depends entirely on the NAV of that particular investment date.

Example: Lump sum as a single-entry snapshot

Karan invests ₹3,00,000 lump sum into a mutual fund on a day the NAV is ₹150. He receives 2,000 units. Later, if NAV becomes ₹165, the value becomes ₹3,30,000. If NAV becomes ₹135, the value becomes ₹2,70,000. 

STP (Systematic Transfer Plan)

What is an STP?

An STP is a facility that transfers money from one mutual fund scheme to another on a fixed schedule. The transfer can be a fixed amount (like ₹10,000/month) or fixed units.

A common pattern is:

• Source fund: a liquid/debt fund (where money is parked first)
• Target fund: another fund (often equity) where money moves gradually

Coming back to grocery shopping, you buy bulk rice once (store it safely), and then move it into the kitchen container in measured portions weekly, so usage feels smooth and controlled.

How STP works (what actually happens each month)

• Investors can start with money in Fund A (source).
• Every month, a set amount is redeemed from Fund A.
• That redeemed amount is invested into Fund B (target) on that day’s NAV.
• This repeats until transfers are complete or you stop the STP.

Example: STP from a parked amount

Sana starts with ₹2,40,000 parked in a liquid fund and sets an STP of ₹20,000 per month into an equity fund. Every month, ₹20,000 is moved from the liquid fund to the equity fund and is used to buy equity units at that month’s NAV. This continues for 12 months until the full ₹2,40,000 is transferred, meaning her equity investment happens in 12 planned steps instead of one single lump sum entry.

Example: STP showing unit purchase effect

Assume the target equity fund NAV during transfers changes like this:

Just like SIP, STP also spreads purchases across NAV levels—but the money originates from a source fund rather than fresh monthly contributions.

SWP (Systematic Withdrawal Plan)

What is SWP?

A SWP is a facility that lets you withdraw a fixed amount from a mutual fund at regular intervals (monthly/quarterly, etc.). The fund meets this withdrawal by redeeming units.

Back to grocery shopping, instead of preparing meals using the entire pantry in one week, you take out a planned quantity every week, which involves making fresh food and not storing it.

How SWP works (mechanics)

• Investors can set a withdrawal amount (say ₹15,000 per month).
• On each SWP date, units worth ₹15,000 are redeemed at that day’s NAV.
• The cash comes to your bank account.
• Your unit balance reduces because units are being sold to pay you.

Example: SWP and unit redemption

Cash withdrawn each month is the same (₹12,000), but the units redeemed change with NAV.

Example: SWP as a structured payout

After building a corpus, Raj starts an SWP of ₹20,000/month to create a planned monthly payout. He isn’t making random withdrawals. The withdrawal has a calendar and a number, like a household expense plan tied to a fixed date.

A single combined example showing all methods together

1. SIP: Priya invests ₹5,000/month in Mutual Fund ABC; units change as NAV changes.
   
   
2. Step-up SIP: Arjun increases ₹10,000/month by ₹2,000 yearly; Nisha increases ₹7,000/month by 10% yearly.
   
   
3. Lump sum: ₹2,00,000 at NAV ₹100 = 2,000 units; at NAV ₹80 = 2,500 units. Karan invests ₹3,00,000 at NAV ₹150.
   
   
4. STP: Sana transfers ₹20,000/month from liquid to equity for 12 months; units vary with NAV (e.g., 400/500/250 units at NAV ₹50/₹40/₹80).
   
   
5. SWP: Meera withdraws ₹12,000/month; units redeemed vary with NAV (120/100/150 units at NAV ₹100/₹120/₹80). Raj runs an SWP like a planned monthly payout.

Different investors, different transaction patterns—just like different households manage groceries in their own way: some stick to monthly refills, some do occasional bulk purchases, some prefer moving bulk stock into the kitchen slowly, and some follow planned, regular consumption so the pantry lasts longer.

Quick Comparison Table:

Investors can look to the calculator section to quickly estimate how a SIP, Step-up SIP, lump sum investment, or SWP may play out over time based on different amounts, time periods, and expected return assumptions. It’s a simple way to turn these methods into clear, number-based projections and understand how small changes in contributions or withdrawals can impact the overall outcome.

Conclusion

Grocery management becomes effortless when there’s a system: regular refills for essentials, occasional bulk buys for efficiency, careful transfer from storage to kitchen so nothing feels chaotic, and planned usage so the pantry lasts.

That’s exactly what these mutual fund methods represent. SIP is the steady refill, Step-up SIP is the planned increase in your basket size, lump sum investment is the one-time bulk purchase, STP is transferring from storage to daily use in measured parts, and SWP is taking out a planned amount regularly.

When investors view Mutual Fund investing through this grocery lens, the methods stop sounding like jargon and start looking like simple, practical routines.

FAQs

Q) Does Step-up SIP mean a new SIP is created every year?
No. The SIP continues, but the amount increases automatically as per the step-up rule.

Q) In SWP, why does the number of units redeemed change?
Because SWP redeems units based on NAV. The same withdrawal amount divided by different NAV values leads to different units redeemed.

Q) Can SIP, SWP, STP, and Lump sum methods be used together?
Yes. It’s possible to have SIPs running, do a lump sum separately, run an STP from a parked amount, and later set an SWP for structured withdrawals.

Investors are requested to take advice from their financial/ tax advisor before making an investment decision.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.