A Systematic Withdrawal Plan (SWP) is a method to get a monthly payout from a mutual fund scheme with a growth plan. Investors can automatically withdraw a fixed amount at regular intervals, whether monthly, quarterly or yearly, from such investments. SWP is a great tool for investors who want a regular cash flow but do not want to withdraw too much at a time.
If you want to start investing in SWP, check out these top Systematic Withdrawal Plans in India, benefits and things to consider before investing. Read on!
The following are some of the best mutual funds across different categories to invest in via SWP:
|Name of the Mutual Fund Scheme||Category of the Mutual Fund||5 Year Annualised Returns|
|Mirae Asset Tax Saver Fund||ELSS||19.69% as of February 28 2022|
|Canara Robeco Equity Tax Saver||ELSS||18.99% as of February 28 2022|
|Canara Robeco Bluechip Equity Fund||Large cap fund||18.85% as of February 28 2022|
|Axis Bluechip Fund||Large cap fund||17.48% as of February 28 2022|
|Edelweiss Balanced Advantage Fund||Balanced advantage fund/dynamic asset allocation fund||13.88% as of February 28 2022|
|Navi Large Cap Equity Fund||Large cap fund||12.72% as of February 28 2022|
|PGIM India Ultra Short Term Fund||Ultra short duration fund||7.61% as of February 28 2022|
|ICICI Prudential Ultra Short Term Direct Fund||Ultra short duration fund||7.14% as of February 28 2022|
|Quant Liquid Fund||Liquid fund||6.12% as of February 28 2022|
|Franklin India Liquid Direct Fund||Liquid fund||5.68% as of February 28 2022|
SWPs allow you to make fixed withdrawals from a mutual fund scheme at regular intervals. In other words, the SWP redeems a part of your ongoing investment to honour the specified payout. Such payments will continue till there are no units left in your holdings.
The number of units redeemed will depend on the SWP amount and the scheme’s NAV (Net Asset Value) on its withdrawal date. Let us consider the following example to understand how SWP plans work:
Ms. Aggarwal has invested a lump sum amount of Rs. 2 lakh in a fund with an NAV of Rs. 20. Thus, 10,000 fund units are allotted. She starts a monthly SWP of Rs. 5000 after a year from the investment date.
In the first month, the scheme has an NAV of Rs. 40. To generate Rs. 5000, the SWP will redeem 125 fund units (Rs. 5000/40), and 9875 units are left. For the second month, assuming the NAV is Rs. 50, the SWP redeems 197.5 fund units. Now, the balance left is 9677.5 fund units.
Here are some situations where one may invest in SWP mutual funds:
For debt funds, STCG will be applicable at income tax rates of individual investors for a holding period of less than 36 months. If the holding period is longer, LTCG is taxed at 20% with indexation benefits.
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A systematic Withdrawal Plan is helpful for investors looking for regular cash flows. You can choose the interval and amount of withdrawals as per your expenses. After retirement, you can also redeem your investments via SWPs to sustain your needs for a longer time. To choose the best SWP plans, refer to your investment profile and long-term fund performance.
Ans: Existing investors can contact their financial advisor or mutual fund distributor to apply for an SWP. They will need to file an SWP form and submit it to the AMC (Asset Management Company) or registrar for processing. New investors can opt for an SWP when submitting the application form for a mutual fund.
Ans: You will need to be mindful of where you are investing and how much you want to withdraw to set up an SWP. Investors can opt for an SWP that is lower than the scheme’s average returns to avoid touching the capital.
Ans: Yes, many investors overlook the risks of not redeeming the entire investment for the possibility of generating extra returns. For example, if you have an equity investment and you redeem in a staggered manner via SWPs, the remaining fund is subject to market risks.
Ans: If your withdrawals are more than the investments earned, your retirement corpus may not last for very long. Equity markets can be volatile, and a market downturn can deplete your retirement corpus early. This is not much of a problem if you have a considerable investment amount.
Ans: Unlike an SWP, which redeems fund units at fixed intervals, a Systematic Transfer Plan (STP) involves transferring money to another mutual fund. The aim of an STP is to rebalance your investment portfolio by transferring funds to a different asset class.
Before you go…
Disclaimer- Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.