What is SWP in Mutual Fund

18 Aug 2022

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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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