Everything you need to know about SWP – Systematic Withdrawal Plan
What is SWP?
SWP is an abbreviation of systematic withdrawal plan, this is simply an opposite of our SIP. In SIP we invest an amount in a mutual fund regularly at a definite interval such as interval such as weekly, monthly, quarterly etc., Whereas in SWP we would withdraw an amount regularly at a definite time interval such as interval such as weekly, monthly, quarterly etc.
For an example, Assuming unit cost of mutual fund as ₹50, If I invest ₹50 lakhs in a mutual fund and enroll for a SWP of monthly 20000 what would happen is
Investment = ₹5000000/₹50 = 100000 Units
Now let’s assume after 1 st month the unit cost has increased from ₹50 to ₹51. Then for a SWP of ₹20000
= ₹20,000/₹51 = 392.16 units will be redeemed. The fund will still have 100000 – 392.16 =99607.84 units.
Where should you use SWP?
- In Retirement as pension – The returns in a pension plan is comparatively lower than debt mutual funds, whereas the annuity is taxed at the income slab. Hence if the retirement corpus is invested in a debt mutual funds 3 or 4 years before pension requirement and use SWP for monthly income after 3 or 4 years, then the after-tax return will be substantially higher than the pension fund.
- Child’s school fee – Parents can park their bonus/corpus they get from salary in a debt fund and use SWP during the term fee/annual fee for their kids so that they get better returns than the traditional savings method after tax.
- House Rent – If you have high corpus and decided not to go for buying a home/ take a home loan, you can invest the amount in a debt mutual fund scheme use monthly SWP for paying rent in a tax-efficient way.
Start an SWP on WealthTrust app now.
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