Hello everyone! If you’ve been investing in mutual funds for a while now, you may be wondering how to begin withdrawing money without ruining your savings. That’s when SWP enters the picture. In this article, we’ll explain what SWP is, how it works, and if it’s for you. We’ll make it easy, just right for anyone who wants to learn how to better manage their investments.
What is SWP?
SWP is an abbreviation for Systematic Withdrawal Plan. It’s a facility provided by mutual fund houses that allows you to withdraw a certain amount of money from your investment at a fixed frequency, say monthly or quarterly. It’s the reverse of SIP (Systematic Investment Plan), where you invest money at regular intervals – here, you’re withdrawing money in a systematic manner.
It’s extremely convenient for retirees or anyone who requires regular income from their funds. Rather than liquidating all your units at one time, SWP allows you to stagger the withdrawals, and your money continues to grow in the fund while you spend some of it.
How Does SWP Work?
It is quite easy to set up an SWP. Here is a step-by-step guide on how it works:
- Select Your Fund and Amount: Select a mutual fund on which you already have an investment. Determine how much you would like to withdraw whenever you do so – it may be a fixed amount, say $500, or a proportion of your investment.
- Specify the Frequency: Select how frequently you wish the money – monthly, quarterly, or even yearly. Monthly is favorite for simulating a salary.
- Link Your Bank: The fund house will withdraw the units due for redemption from your investment and credit the money to your bank account at the specified date.
- Units Are Redeemed Depending on NAV: The quantity of units that is sold varies with respect to the present Net Asset Value (NAV) of the fund. When NAV is greater, fewer units are sold; when low, more units are sold. This keeps going until your investment is exhausted or until you suspend the plan.
- Monitor and Modify: You can check your balance left over and modify the plan if necessary, such as raising withdrawals or suspending them.
It’s like having a steady stream of cash from your savings without the hassle of manual sales each time.
Also Read: How to Invest in Mutual Funds in India – Step by Step Guide for Beginners
Benefits of SWP
SWP has some great perks that make it appealing:
- Regular Income: It provides a predictable cash flow, ideal for covering expenses in retirement or supplementing your salary.
- Tax Efficiency: Withdrawals are considered redemptions, and based on the type of fund, you may pay less tax than interest earned from fixed deposits.
- Capital Preservation: Your remaining funds remain invested and can grow, as opposed to taking all the money out at once in lump-sum withdrawals.
- Flexibility: You can initiate, suspend, or modify the plan at any time without large penalties.
- Rupee Cost Averaging in Reverse: Withdrawal over some time keeps you from selling all at once when the market declines.
At large, it is a clever method to let your investments earn money during the distribution phase.
Drawbacks of SWP
As with any investment aid, SWP is not perfect. Below are a couple of cons to keep in mind:
- Reduces Your Corpus: Periodic withdrawals will sooner or later bring your investment down to zero if you do not inject further money.
- Market Risk: If your fund is underperforming, you may need to sell extra units to receive the same amount, accelerating depletion.
- Opportunity Cost: Withdrawn money can no longer earn interest, so think ahead to minimize running out too early.
- Exit Loads or Fees: A few funds have fees for withdrawing before a holding period, but most waive them after a holding period.
It’s ideal for those with a decent corpus who require income but would like to continue enlarging the remainder.
Also Read: Top 10 Mutual Fund Investment Apps in India in 2025
Is SWP Right for You?
If you are close to retirement, have some lump sum amount from bonus or inheritance, or simply desire passive income, SWP may be a winner. It’s particularly great if you want stability rather than guessing market highs and lows. But if you are still accumulating wealth, stick to SIPs first. Always consult a financial advisor to customize it to your requirements.
Final Thoughts
SWP is a convenient tool in mutual funds for converting your investments into regular income without the hassles. It instills discipline, provides flexibility, and can be tax-efficient. If you are saving for retirement or for additional income, learning about SWP can lead to better decisions.
Have you employed SWP before? Let us know in the comments! If this was useful, read our articles on SIP and other mutual fund fundamentals.
Disclaimer: Informational only and not advice on investments. Investments carry risks, and you must seek the services of a professional before you begin.
