A Systematic Withdrawal Plan (SWP) allows you to withdraw a fixed amount from your mutual fund investment at regular intervals.
Systematic Withdrawal Plan (SWP) is a facility provided by mutual funds that allows an investor to withdraw a fixed amount from their existing investment at periodic intervals. This is usually used by retirees or individuals seeking a steady monthly income stream from their accumulated corpus.
In an SWP, the mutual fund house redeems (sells) an equivalent number of units from your account to fulfill your monthly withdrawal request. The remaining units continue to grow as per the fund's performance.
Where:
If you invest ₹10 Lakhs and withdraw ₹10,000 per month for 5 years at a return of 10% p.a., you would have withdrawn a total of ₹6,00,000 over 5 years. Your remaining balance (final value) at the end of the period would be ₹8,92,442.
Yes, SWP is often more tax-efficient than dividend options or FD interest. Only the 'capital gain' portion of the withdrawal is taxed, and if you withdraw after 1 year from an equity fund, you benefit from Long Term Capital Gains (LTCG) tax rates.
If your monthly withdrawal is consistently higher than the fund's returns, your principal corpus will slowly get depleted until it reaches zero. It is ideal to keep your withdrawal rate below the expected return rate to preserve the corpus.