Understanding SWP Plans in Mutual Funds

Investing in mutual funds is a great way to grow your wealth over time. But sometimes, investors may need to withdraw money from their mutual fund investments to meet regular income needs. This is where a SWP comes in handy. 

For those unfamiliar with the term, SWP stands for Systematic Withdrawal Plan. Whether you’re looking for a steady post-retirement income or a way to manage your cash flow, SWP ensures financial stability. It allows you to withdraw a fixed amount periodically from your mutual fund investments while the remaining units stay invested. 

What is SWP?

The SWP meaning in mutual funds is a ‘Systematic Withdrawal Plan’ that allows mutual fund investors to regularly withdraw or redeem a portion of their investments. It aims to provide investors with a continuous income at regular intervals from their mutual fund investments.

It is useful for those who depend on their mutual fund investments to meet regular income needs. With a SWP plan, investors can consistently withdraw smaller, fixed amounts. Withdrawing small amounts regularly is safer than taking out a large sum at once. It helps manage funds better and allows your remaining investment to grow over time.

Benefits of Systematic Withdrawal Plan

The key benefits of SWP include:

• Provides regular income for expenses, without having to redeem the entire investment.
• Flexibility to choose withdrawal frequency – monthly, quarterly, half-yearly, etc.
• Capital appreciation remains invested, leading to growth in the overall corpus.
• It is tax efficient as only the capital gains portion is taxable.
• Option to discontinue, increase or decrease the SWP investment amount.

How SWP Works? 

A Systematic Withdrawal Plan lets investors specify the withdrawal amount and frequency per their needs.

The mutual fund house and fund manager then ensure that the number of units from the investor’s mutual fund holdings is redeemed to match the specified withdrawal amount. This amount is transferred to the investor’s linked bank account on the date opted for by the investor – monthly, quarterly, half-yearly, etc.

This process of redeeming the required number of units continues until the investor decides to stop the SWP investment or until the overall investment amount is exhausted.

Suppose you invested ₹10 lakhs in a mutual fund and need to withdraw ₹10,000/monthly. In this case, SWP can make that happen easily. Here’s how:

1. Firstly, you need to set your monthly withdrawal amount i.e. ₹10,000 and date with the mutual fund company.
2. Every month on that date, the amount will automatically redeem exact units from your investment to generate the set amount.

For example, if your fund has a Net Asset Value (NAV) of ₹50 per unit, they would sell 200 units (₹10,000 ÷ ₹50 per unit) to withdraw ₹10,000.

3. The fund house handles this redemption in the backend and simply credits ₹10,000 to your linked bank account on the given date.

This process repeats monthly until the SWP is stopped or the total investment value falls below the withdrawal amount.

Each withdrawal reduces your fund units, so track its long-term impact on your investment.

SWP Investment Options

A SWP investment is suitable for investors with different investment horizons and objectives. It can be started in the following types of mutual fund schemes:

• Equity funds allow regular income while remaining invested to benefit from long-term growth.
• Debt funds minimise volatility while generating income.
• Hybrid funds offer a balance of equity and debt, providing stability and growth.
• Solution-oriented funds – retirement, children’s education etc.
• Liquid and overnight funds – for very short-term regular income.

How to Start SWP?

Starting a SWP plan is easy and quick. Listed are the below simple steps:

• Choose the mutual fund scheme from the SWP mutual fund list offered by the fund house.
• Decide the SWP withdrawal amount and frequency.
• Fill out the SWP form and submit it along with the mandate form with bank details.
• The fund house will register the SWP and confirm the start date.
• SWP installments will then be processed using the details provided.

To modify or discontinue, simply inform the fund house through call, email or through their mobile application.

The Bottom Line

SWP plan allows disciplined withdrawals while maintaining long-term exposure to market upside. It’s proven to be a convenient and tax-efficient option. Be invested in the right asset allocation and review your SWP from time to time based on market movements.

In addition to SWPs, investors can also consider borrowing against their mutual fund holdings through loan facilities offered by Fibe. With Fibe Loan Against Mutual Funds, You can typically borrow up to 80% of your mutual fund value and pay only interest. You can get up to ₹10 lakhs within minutes. Download the Fibe App today!

FAQs 

Which is better SWP or FD?

SWP is better for investors seeking regular income with capital appreciation over the long term. Most importantly, SWP allows remaining investments to stay in equity funds.

Who can use SWP?

Anyone looking for periodic cash flows from mutual fund investments such as retirees, salaried individuals and business owners. SWPs are highly credible investment options for senior citizens.

What is the SWP interest rate?

There is no fixed interest rate in SWP. Withdrawal amounts depend on the market value of units redeemed at the time as per the specified frequency.