What is SWP in Mutual Fund
18 Aug 2022
Think of SWP (systematic withdrawal plan) as an SIP in reverse. An SIP (systematic investment plan) allows investors to invest a sum of money over a period. SWP allows investors to withdraw a fixed sum of money over a period.
SWP generates series of cash-flows by redeeming units of the mutual fund scheme at the specified interval. The number of units redeemed to generate these cash-flows depends on scheme NAV on the withdrawal date & the SWP amount.
How SWP works
Assume an investor has accumulated a corpus of Rs 25, 00,000 over the years in a Mutual Fund. He can then start an SWP from the accumulated corpus to get regular cashflows as shown below:
| Months | Beginning Corpus | SWP Amount | Ending Corpus |
|---|---|---|---|
| 1 | 25,00,000 | 15,000 | 25,00,989 |
| 12 | 25,11,231 | 15,000 | 25,12,292 |
| 36 | 25,38,666 | 15,000 | 25,39,904 |
| 48 | 25,54,051 | 15,000 | 25,55,388 |
| 60 | 25,70,667 | 15,000 | 25,72,111 |
| 120 | 26,75,944 | 15,000 | 26,78,065 |
*Rate of return is assumed to be 8%
*All figures in INR
As we can see in the example above, if the SWP withdrawal rate is lower than the fund return, the investor gets some capital appreciation too in the long term.
With SWP, investors get
Regular income
to fund retirement expenses, a secondary income to meet household expenses or emergencies
Rupee cost averaging
which allows you to benefit from market volatility, particularly a market uptrend which boosts withdrawal
Tax efficient returns
as there is no TDS on capital gains with equity-oriented mutual funds deemed to be among the more tax-friendly investments
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. The information provided is generic in nature and is for informational purpose only. Please consult your financial advisor before taking any decision.
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