SIP, STP and SWP processing, and the mandates behind them
A systematic plan is one registration and many transactions. How the RTA registers it, collects for it and runs each instalment.
A systematic plan is one instruction that produces many transactions. A Systematic Investment Plan (SIP) is a series of purchases. A Systematic Withdrawal Plan (SWP) is a series of redemptions paid to the investor. A Systematic Transfer Plan (STP) is a series of redemptions from one scheme, each reinvested in another scheme of the same fund.
For the RTA the work splits in two: registering the plan once, with its payment mandate and checks, and then running every instalment on its date at the right NAV. Each instalment is an ordinary transaction with its own NAV, stamp duty where it buys units, and its own record.
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The three plans, from the RTA's side
Each instalment is
SIP
A purchase
STP
A redemption plus a purchase
SWP
A redemption
Money comes from
SIP
Investor's bank, through a mandate
STP
Units in the source scheme
SWP
Units in the scheme
Money goes to
SIP
The scheme
STP
A target scheme of the same fund
SWP
Investor's registered bank account
Payment mandate needed
SIP
Yes
STP
No
SWP
No (payout goes to a verified account)
Stamp duty
SIP
On each instalment
STP
On the transfer-in leg
SWP
None
Typical use, per the workbook
SIP
Building capital over time
STP
A variation of SIP, or booking profits
SWP
Regular income, often in retirement
| SIP | STP | SWP | |
|---|---|---|---|
| Each instalment is | A purchase | A redemption plus a purchase | A redemption |
| Money comes from | Investor's bank, through a mandate | Units in the source scheme | Units in the scheme |
| Money goes to | The scheme | A target scheme of the same fund | Investor's registered bank account |
| Payment mandate needed | Yes | No | No (payout goes to a verified account) |
| Stamp duty | On each instalment | On the transfer-in leg | None |
| Typical use, per the workbook | Building capital over time | A variation of SIP, or booking profits | Regular income, often in retirement |
The payment mandates
- NACH Debit
- National Automated Clearing House, run by NPCI, for repetitive and periodic interbank payments. NACH Debit pulls each SIP instalment from the investor's bank. It replaced the older ECS mandates, which banks moved to NACH without the investor having to do anything.
- One-Time Mandate (OTM)
- A mandate the investor registers once and the fund house then uses for later purchases and SIPs, so no new mandate is signed each time. When OTM money is collected through a payment aggregator, the aggregator must give the AMC the bank account number and remitter name, so the RTA can confirm the money came from the investor's own account.
- Standing Instruction (direct debit)
- An instruction to the investor's bank to pay a set amount on a set date. Banks accept it only when the investor and the mutual fund hold accounts with the same bank.
- Post-dated cheques
- One cheque per future instalment date. The workbook still lists them as a SIP payment mode alongside electronic transfers.
How the RTA registers a SIP
- 1
1. Check the investor
KYC must be valid. PAN is required, except for a micro-SIP: an SIP whose annual total, on a 12-month rolling or April-March basis, does not exceed ₹50,000. That ₹50,000 is a composite limit with the investor's PAN-exempt lump sums in the same fund, and KYC through a KRA still applies.
- 2
2. Check the mandate
The mandate must run from the investor's own bank account. Distributors, advisers, brokers and platforms may not take SIP or one-time mandates in their own name.
- 3
3. Authenticate once
Online subscriptions need two-factor authentication. For a SIP it applies only when the mandate or systematic transaction is registered, not at every instalment.
- 4
4. Record the schedule
Frequency (monthly, quarterly, half-yearly or annual), instalment date as offered by the AMC (for example the 5th, 15th or 25th), amount and tenure. Minimums are set by the AMC; the workbook's usual figure is ₹500 per SIP instalment against ₹5,000 for a lump sum.
- 5
5. Flag it for commission
The RTA identifies first-time mutual fund investors by PAN. For them, the first SIP of up to ₹3,000 a month per scheme can carry upfronted trail commission: up to 1% a year, paid in advance from the AMC's own books, for at most three years.
- 6
6. Send the first statement
Within 10 working days of the first instalment. Later instalments appear in the Consolidated Account Statement.
Free account, this exam preselected.
Running each instalment
- check_circleEvery instalment is processed at the applicable NAV for its date. In an STP, the redemption and the purchase each get the applicable NAV of their own scheme.
- check_circleIf an SWP or STP date falls on a non-business day, units are redeemed at the applicable NAV of the next business day.
- check_circleA SIP started with an NFO: the first instalment goes in at the NFO price and is allotted like an NFO application. The second waits until the scheme reopens for purchases.
- check_circleSIP and STP-in instalments pay stamp duty of 0.005% before units are allotted. SWP and STP-out legs pay none.
- check_circleIf a unit holder who invested as a minor turns 18, the AMC's system suspends the standing SIP, STP or SWP until the folio's status is changed to major.
STP and SWP options
| Option | What moves each period |
|---|---|
| Fixed | A fixed amount, not less than the scheme's minimum |
| Appreciation | Only the gain since the last period: the RTA redeems the number of units that, at the applicable NAV, equals the appreciation |
| Target value (some funds) | Whatever amount brings the target scheme to a pre-set value |
| Transfer of IDCW | The IDCW declared in the source scheme, invested automatically in a target scheme |
Where the exam catches people
Two-factor authentication is needed at SIP registration, not each month. A Standing Instruction needs the same bank on both sides; NACH does not. An STP is two transactions with two NAVs. The micro-SIP limit is ₹50,000 a year, shared with lump sums.
SIP, STP, SWP and mandate questions
What is a NACH mandate for a SIP?expand_more
An authorisation registered with your bank through NPCI's National Automated Clearing House that lets the fund debit each SIP instalment automatically. It works across banks.
What is an OTM in mutual funds?expand_more
A One-Time Mandate: you register it once and the fund house uses it for later purchases and SIPs, so you do not sign a new mandate for each plan.
Is OTP needed for every SIP instalment?expand_more
No. SEBI requires two-factor authentication for systematic transactions only when the mandate or plan is registered.
Can my distributor register a SIP mandate in their own name?expand_more
No. Distributors, advisers, brokers and platforms may not accept SIP or one-time mandates in their own name.
Which NAV does an SWP get if the date is a holiday?expand_more
The applicable NAV of the next business day.
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