What is SWP (Systematic Withdrawal Plan), and how does it work?

What is SWP (Systematic Withdrawal Plan), and how does it work?

A Systematic Withdrawal Plan (SWP) is a financial tool that enables investors to systematically withdraw a predetermined amount from their mutual fund investments at specified intervals, such as monthly, quarterly, or annually.
This structured approach is particularly advantageous for individuals who require a consistent cash flow, such as retirees relying on their investments for regular income or anyone needing periodic withdrawals to meet financial commitments.
By utilizing an SWP, investors can maintain financial stability while keeping the remainder of their investment intact to potentially grow over time.

How SWP Works

  1. Investment in a Fund – You invest a lump sum in a mutual fund.
  2. Regular Withdrawals – You set up an SWP to withdraw a fixed amount (e.g., monthly, quarterly).
  3. Withdrawal from Units – The mutual fund sells enough units to provide the required cash.
  4. Continued Growth – The remaining units stay invested and can grow over time.

Benefits of SWP

  1. Regular Income – Useful for retirees or those needing periodic cash flow.
  2. Tax Efficiency – Compared to fixed deposits, SWP can be more tax-friendly (only capital gains are taxed, not the principal).
  3. Compounding Benefits – The remaining corpus continues to grow.
  4. Flexibility – You can modify or stop withdrawals anytime.

Example

  1. You invest ₹10 lakhs in a mutual fund.
  2. You set up an SWP of ₹10,000 per month.
  3. Every month, the fund sells enough units to give you ₹10,000.
  4. If the fund grows, your corpus lasts longer.

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