This page provides all the details you need to know about the Systematic Withdrawal Plan (SWP).
Before you read this page, please check Mutual Funds Overview to learn about the basics of Mutual Funds.
Table of Contents
What is SWP?
SWP stands for Systematic Withdrawal Plan. SWP is a method of regularly withdrawing money from an existing Mutual Fund at pre-determined intervals.
The money withdrawn can be re-invested in another fund or can be kept as cash by the investor.
Is SWP a Financial Product?
No. SWP is not a financial product. It is just a method to withdraw money from Mutual Funds.
How does SWP work?
Choose an existing mutual fund scheme where you have already invested your money or invest a lump sum amount in an "Open Ended" mutual fund scheme
Specify the withdrawal amount and withdrawal frequency (monthly, quarterly, etc)
Specify the duration (for ex. 2 years) during which you want to withdraw the amount
You will receive the amount from mutual fund company as per your chosen withdrawal frequency
At the end of the term, you can opt for extending the withdrawal further or stop there
The lump sum amount in the existing mutual fund can remain invested or you can withdraw it, if any
provides regular income to investors from their investments
investor can choose the withdrawal amount and withdrawal frequency
option to withdraw only the appreciated amount so that the capital amount remains invested
even after your withdrawals, the remaining amount will remain invested and earns returns
SWP is better than dividends in terms of Tax effect
there is no TDS (Tax Deducted at Source) deducted for the withdrawn amount
Drawbacks of SWP
Depending upon the performance of the fund, withdrawals can eat into your capital amount and you may have zero Rupees at the end
SWP is nothing but taking out money from an existing mutual fund. So, depending upon the fund and withdrawal timeline, STCG (Short Term capital Gains) tax or LTCG (Long Term capital Gains) tax may be applicable
Depending upon the fund and withdrawal timelines, there may be exit load fees for withdrawing
Investors are not allowed to participate both SIP and SWP in one mutual fund scheme
You can't opt for SWP facility under "Close Ended" mutual funds
You can opt for one of the following withdrawal modes to withdraw through SWP.
In SWP, you can opt for one of the withdrawal methods.
withdraw fixed amount
withdraw appreciated amount
1) Withdraw a Fixed Amount:
In this method, you can opt for withdrawing a fixed amount every withdrawal period.
For example, you may choose to withdraw Rs. 5,000/- every month or Rs. 10,000/- every quarter.
This method provides a regular income but the drawback is that it can reduce your capital amount considerably over time.
2) Withdraw Appreciated Amount:
In this method, you can opt for withdrawing only the appreciated amount during the withdrawal period.
For example, let us assume that your investment will give returns of Rs. 10,000/- during a quarter. So, you will receive Rs. 10,000/- and your capital investment will remain the same and invested.
Another example, let us assume that your investment doesn't give any returns during a month or quarter, then you will not receive any amount.
This method is good for those who wants to receive only the appreciated amount and wants to protect the lump sum capital amount.
Duration of SWP
Minimum duration is 6 months in case of monthly withdrawal.
Minimum duration is 12 months in case of quarterly withdrawal.
There is no maximum duration for withdrawal. You can withdraw as long as you have funds or till the funds reaches zero Rupees.