Everything you need to know about SWP – Systematic Withdrawal Plan

SWP - Systematic Withdrawal Plan

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?                                        

  1. 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.
  2. 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.
  3. 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.

New to Mutual Funds? Learn more about basics of mutual funds

Visit our website to know more about WealthTrust. Do read our other blogs on Mutual funds.

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