Best SWP Mutual Funds To Invest In 2023
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!
10 Best SWP Plans in India (2023)
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 |
How Do Systematic Withdrawal Plans (SWP) Work?
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.
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Benefits of SWP Mutual Funds
- Flexible Income: Investors can choose the amount, frequency and dates for redeeming fund units automatically. They can also stop the investment or add further investment to suit their needs.
- Tax Efficiency: By not redeeming the principal amount invested, you can lower your taxable income. Thus, SWPs are tax-efficient redemption plans. Moreover, no TDS is applicable on the SWP amount.
- Regular Income: You can use an SWP as secondary income in times of need. If the rate of return on investment is high, you can get regular income without reducing the initial investments.
- Helps Meet Financial Goals: You can use SWP to create a customised cash flow for reaching your financial goals. The money can supplement your main income in times of financial stress or market fluctuations.
Who may Invest in SWP Mutual Funds?
Here are some situations where one may invest in SWP mutual funds:
- Those in the high tax bracket may use SWP to save capital gains tax for equity funds. Gains from debt funds will also have less tax applicable due to indexation benefits.
- You can also use SWP to redeem investments made through SIP (Systematic Investment Plan). If you have been investing for retirement, you can use the best SWP plans to get a regular monthly flow over a long duration.
- SWPs can be beneficial for risk-averse investors. They can invest in low-risk mutual funds (for example- arbitrage funds) and receive only the capital gains via SWP.
Factors to Consider before Investing in SWP Mutual Funds
- Mutual Fund Type: The SWP is the choice of date, periodicity and amount of withdrawal from a mutual fund. You will want to do adequate research to choose the best mutual funds for SWP as the returns will depend on it. Remember to check if it suits your financial goals, risk profile, investment horizon, etc.
- Market Situation: Market fluctuations directly impact mutual fund investments. When an individual is approaching a financial goal, investors may want to consider the market situation. This is to make sure that the fund returns do not erode if not withdrawn in time.
- Pension Requirements: The best funds for SWP let you prepare an adequate retirement corpus. You will want to invest in a mutual fund suiting your risk profile. If well-planned, SWP is ideal for supplementing your income after retirement.
- Your Financial Needs: With an SWP, you can time your withdrawals as per your financial requirements. If your financial goals require funds in a phased manner, you make sure that you will get funds at the right time.
- Taxability: Every withdrawal through the SWP will be subject to capital gains tax. For equity funds, STCG (short term capital gains) tax will be applicable at a 15% rate for less than a year’s holding period. For a longer holding period, LTCG (long-term capital gains) tax is applicable at a 10% rate above Rs. 1 lakh tax exemption limit.
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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Final Word
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.
FAQs
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.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
