Blog

In a country like India, various investment options exist, such as fixed bank deposits, buying gold or silver, and investing directly through the stock market. Some might also invest in mutual funds. Every investor has a different purpose and objective for his investing. All these investments have different characteristics. Investment in the bank or buying gold or silver might little less risky,  and investing in the stock market is more dangerous but it has a high return capacity. Mutual funds are an investment vehicle that has fixed income i.e. low-risk funds and funds that give high returns. In addition, there is a concept in mutual funds that is a Systematic Withdrawal Plan (SWP). In today's article, we will get detailed information about what is SWP? How does it work? What are its benefits?

What is SWP?

SWP stands for Systematic Withdrawal Plan. This is a concept in which you can invest in mutual funds at once (Lumpsum) or through SIP at a frequency of time, you can also withdraw a certain amount of investment through SWP as per your requirement.

How does SWP work?

When you choose SWP for your mutual fund investment, the fund manager sells certain units of the units you have and deposits that money in your bank account. The period for determining SWP is every week, every month or every three months. If you have invested 20 lakhs in a mutual fund, and you need 10 thousand per month, then the fund manager will sell units worth 10 thousand rupees per month and that amount will be deposited in your account, and also returns on the remaining investment will continue. 

What are the benefits of SWP?

Regular Income: 
 

The biggest advantage of SIP is to provide a steady income, this is a great facility for people who are retired.

Benefit of Compounding:


A fixed amount will be withdrawn under SWP but returns will continue to be received on the remaining amount.

Tax Saving:


If a lump sum investment is withdrawn from a mutual fund, then taxes are levied on it, but on the contrary, if an investment is withdrawn under SWP, then no tax will be levied on it.

Rupee Cost Averaging:
 

Many times, units are purchased at higher prices in the market. Due to Rupee Cost Averaging, a balance is achieved in the purchase price, similarly, RCA is also beneficial in SWP. And on the contrary, if a lumpsum amount is withdrawn, the returns can be lower.

Conclusion:

SWP is a great option to get a steady income, in this the investor can also save tax. SWP is an important aspect of financial planning. This also helps the investor maintain cash flow.

FAQ:

1. What is the 4% rule in SWP?
 

Ans: If your investment amount is 30 lakh and you are planning for a SWP  scheme, then make  SIP a maximum of 4% of the Total Amount. 

2. Is SWP better than FD?
 

Ans: SWP is withdrawn from the investments you make, and the returns received are met on the balance investment, so many times there are ups and downs.

3. How much is the charge for SWP?
 

Ans: There is no charge for the Systematic Withdrawal Plan, but the main charge is on STGT and LTGT on the returns received on the investment.

4. Can I convert my Sip into SWP?
 

Ans: To get a good amount through SWP, it is necessary to have a good investment. After you have made the right investment according to the fund, SIP can be converted into SWP.

5. What is the main disadvantage of SWP?
 

Ans: If the returns on your investment are less than the SWP, then your investment will decrease over time.