What is SWP in mutual funds?

A Systematic Withdrawal Plan is a facility which is extended to mutual fund investors allowing them to regularly withdraw a fixed amount of money in a systematic manner from a mutual fund investment. It’s entirely upon the investors to choose the frequency of withdrawal whether monthly, quarterly or annually. While, they can also choose to just withdraw the gains on their investment and keep their invested capital intact. At the set date, units from the investors portfolio are sold and funds are transferred to the investors account.

​

Listed below are some of the important features of SWP:

​

• It is a facility to redeem units from a particular mutual fund investment on a systematic and regular basis.

• Investors get the benefit to choose the frequency of withdrawal according to their needs.

• They also have an option to either withdraw a fixed amount or only the capital appreciation.

• It is ideal for investors who are seeking regular income from their investments and is a beneficial facility for retirement planning.​

​

How to invest in Mutual Fund SWP?

 

You invest in regular mutual fund schemes. Then you execute the systematic withdrawal through SWP application forms.

This is like giving a standing instruction to withdraw regularly.

​

There are two ways to do mutual fund SWP.

​

Fixed sum Mutual Fund SWP:In this method, you choose to withdraw a fixed amount at a regular interval like monthly/ quarterly.

Capital Appreciation Mutual Fund SWP:In this method, you choose to withdraw the excess amount over and above the principal invested at a regular interval.

 

Benefits of  Mutual Fund SWP

From the above examples it is amply clear that the SWP option of the Mutual Funds has its definite advantages.

The two major gains derived from this mutual fund SWP option are again dwelt upon:

 

1. Mutual Fund SWP and Regularity:Mutual Fund SWPs’ provide the assurance of getting a fixed amount at a pre-determined time frequency. Among the other options, frequency and payout of the dividend paying monthly income plans are not certain or fixed beforehand.

Sometimes, if the fund cannot generate sufficient profits, you might have no dividends to be paid. Hence every month you will have different amounts coming in and some month there might be no money received. SWP is a definite boon in such a scenario.

​

2. Taxation of Mutual Fund SWP:Mutual Fund SWP is a much better option as far as taxation is concerned. Even if the investor has to pay Long term/short-term capital gain on the sale of his investment, it will be better than paying for the dividend distribution tax (DDT) of 28%.

Things get better in case of Mutual Fund SWP from equity funds. As the long term capital gains from equity mutual funds are exempt in case of holding beyond a year, you end up paying no tax on the withdrawals.

 

Inflation Protection through Mutual Fund SWP:

Most of the fixed income instruments do not insulate the investor against the inevitable effect of inflation. The Mutual Fund SWP scores in terms of generating returns to keep up with inflation especially is one opts for the equity fund route.If you have any comments or questions, get in touch with anytime.

 

 

​

Or are you interested in creating a Comprehensive Financial Plan for your financial goals?Skip the queue by registering for your 30 Minute FREE Financial Plan Consultation. Click the ‘‘BOOK YOUR SLOT NOW!’’ button below.