Systematic Withdrawal Plan (SWP)
SIP- Fixed amount invested on pre defined date in the mutual fund through which one can collect lump sum amount is SIP.
SWP– The lump sum amount which you have invested out of which you remove some amount on a pre defined date is SWP. SWP can be done through Debt, equity or hybrid funds. The amount can be withdrawn monthly, quarterly or twice a year or yearly.
There are Two Types of SWP:-
Fixed amount
Fixed amount is withdrawn on a predefined date from mutual fund whether the returns of mutual fund are higher or lower.
Capital appreciation:-
The returns earned by mutual fund from the lump sum amount, that returns are credited to the bank account of the holder.
Use of SWP:-
- To meet retirement expenses.
- For long holidays.
- Person doing business/professional.
Benefits of SWP:-
- Regular stream of income without removing invested amount.
- Good returns compared to- Fixed income options i.e. FDs, SCSS, POMIS etc., Dividend options and MIPs and many more.
- Withdrawal are done by Avg. price.
Some important points:-
- You cannot do both SIP and SWP in one fund.
- Withdrawals from fund should be done keeping in mind the inflation.
- Tax treatment for SWP will be same as normal withdrawal.
- If you want SWP for some months to 3 years than you should go for liquid fund, ultra short term or short term funds.
- You should monitor performance of your fund.
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