What are SWPs?

A Systematic Withdrawal Plan or SWP is a facility extended to investors allowing them to withdraw a fixed amount or fixed number of units from a mutual fund scheme regularly. You can choose the amount/units and frequency of withdrawal. You can also choose to just withdraw the gains on your investment keeping your invested capital intact. At the set date, units from your portfolio are sold and the funds are transferred to your account.

When you opt for an SWP, a certain number of units held by you are redeemed regularly. Therefore, there will be times when the markets are high on the date of redemption and when they are low. If the markets are doing well and you have opted for an SWP of a fixed amount, then lesser units will be redeemed as compared to the time when the markets are low. This averages your returns and protects you from potential losses which can arise if you sell your units during a bear-run.

Common types of SWPs

• Fixed Withdrawal - The most common type of SWP is the fixed withdrawal plan, where investors decide a specific amount to be withdrawn regularly. This amount remains constant regardless of the market conditions or the performance of the mutual fund.
   
• Appreciation Withdrawal -  In an appreciation withdrawal option, investors only withdraw the gains made on the principal amount on a monthly/quarterly basis, leaving the invested capital intact. This is ideal for those looking to preserve their capital while still generating income. 

SWP Calculator

If you have a total investment of INR 50 lakhs, and decide to start an SWP of INR 50,000 per month thereon, and we assume a return rate of 12% per annum:

How did you calculate the remaining value?

As seen above, you’ll have a comfortable source of income for at least 25 more years.

DISCLAIMER: This blog is solely for educational purposes and not to offer any investment advice. Please do your own research or consult a financial advisor before making any investment decisions.