Systematic Withdrawal Plan

Introduction

As an investor, you want to create wealth over the long term and utilise your growing wealth to meet your regular expenses. Is there a disciplined and systematic way to achieve both the objectives – regular income and wealth creation? Yes, there is. A Systematic Withdrawal Plan (SWP) in mutual funds helps you accomplish both objectives.

What is a Systematic Withdrawal Plan (SWP)?

A Systematic Withdrawal Plan (SWP), a facility provided by mutual fund houses, allows investors to withdraw a predetermined amount from their mutual fund investments at regular intervals—monthly, quarterly, or annually.

How does a SWP Work?

Suppose you have invested ₹5,00,000 in a mutual fund scheme and wish to withdraw ₹20,000 monthly through an SWP. Here’s how the process works:

You instruct your mutual fund house to set up an SWP for a specific amount (₹20,000 in this case) and the desired frequency (monthly).
The fund house then redeems the large number of units that generate the predetermined amount on the predetermined date every month.
The redemption process involves selling some units at the prevailing Net Asset Value (NAV) to generate the desired amount.
The predetermined amount (₹20,000) then gets credited to your registered bank account.
This process continues until you discontinue the SWP or your withdrawal amount exceeds your initial investment value.

It’s important to note that with each withdrawal, the number of units in your mutual fund portfolio will decrease, potentially impacting the overall value of your investment in the long run.

Systematic Withdrawal Plan Calculator

Many mutual fund houses provide an SWP tax calculator, also known as an SWP calculator or SWP mutual fund calculator, to help investors estimate the potential tax implications of their SWP strategy. These calculators typically require inputs such as:

Investment amount
Desired withdrawal amount and frequency
Expected rate of return
Investment tenure
Type of mutual fund scheme (equity or debt)

Based on these inputs and the prevailing tax rates, the SWP tax calculator can provide estimates of:

Total withdrawals over the investment period
Potential capital gains
Applicable tax liability on the capital gains

While SWP tax calculators provide estimates, actual tax liabilities may vary based on changes in tax laws, market performance, and individual circumstances.

To know more about Standard Chartered Wealth calculators, click here

Benefits of a Systematic Withdrawal Plan

Beyond the convenience of regular income, SWPs offer several other advantages:

Rupee Cost Averaging:SWPs balance withdrawal costs over time, minimising market volatility impact.

Flexibility:Withdrawal amounts/frequencies can be adjusted based on needs/market conditions.

Disciplined Withdrawals:SWPs foster disciplined withdrawals aligned with long-term goals.

Conclusion

A systematic Withdrawal Plan (SWP) can be a valuable tool for investors seeking a regular income stream from their mutual fund investments. By understanding the mechanics, benefits, and considerations of SWPs, you can make informed decisions and leverage this facility to supplement your income after retirement or to achieve some financial goals.

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Securing a Steady Income Stream: Understanding Systematic Withdrawal Plans (SWPs)