SWP is a unique and innovative concept in a mutual fund. It is an enhanced feature that protects your investment, offers substantial capital gains, and at the same time allows you to withdraw a particular amount from it. Due to its enhanced and partial withdrawal feature, it is gaining popularity day by day. Let’s explore in detail what it is, how it benefits you, and what the best SWPs for monthly income you can invest in.
What is an SWP?
SWP stands for Systematic Withdrawal Plan. It is a well-known facility offered by mutual funds, allowing investors to withdraw a fixed amount at frequent intervals from their mutual fund investment plans. Investors can choose to withdraw the amount either semiannually, monthly, or quarterly. It allows the investors an option to withdraw a fixed amount or the capital appreciation on their investment.
This scheme by mutual funds helps the investor to ensure a continuous and regular flow of income. SWPs are valuable as they offer flexibility to the investors. An investor can withdraw a small portion from the total sum while the remaining amount stays invested. It streamlines the investing process while allowing investors to manage regular expenses.
10 Best SWPs for Monthly Income in India
Every mutual fund offers a comprehensive, unique, and high-return SWP plan to investors. Before investing, you should consider the returns, flexibility in withdrawal plans, and minimum investment required to make an informed decision. Here is a list of the 10 Best SWPs for monthly income in India.
| Fund | Fund Type | Minimum SIP Amount (Rs) | Benchmark Index | 3 Year CAGR (%) | 5 Year CAGR (%) |
|---|---|---|---|---|---|
| Quant Flexi Cap Fund | Equity Flexi Cap | 1,000 | NIFTY 500 TRI | 20.57 | 32.23 |
| ICICI Pru Value Discovery Fund | Equity Value Fund | 500 | NIFTY 150 TRI | 22.11 | 26.05 |
| HDFC Focused 30 Fund | Equity Focused Fund | 100 | NIFTY 500 TRI | 23.41 | 22.53 |
| Quant Mid Cap Fund | Equity Midcap | 1,000 | NIFTY 150 TRI | 25.40 | 32.40 |
| Quant Infrastructure Fund | Equity Sectoral | 1,000 | NIFTY Infrastructure TRI | 25.54 | 34.40 |
| Nippo India Large Cap Fund | Equity Largecap | 100 | BSE 100 TRI | 19.07 | 19.88 |
| Quant Small Cap Fund | Equity Smallcap | 1,000 | NIFTY Smallcap 250 TRI | 26.63 | 46.17 |
| ICICI Pru Constant Maturity Gilt Fund | Debt-Gilt Fund | 1,000 | CRISIL 10 Year Gilt Index | 5.70 | 6.71 |
| Sundaram Equity Savings Fund | Hybrid Equity Savings | 100 | NIFTY Equity Savings TRI | 10.06 | 12.93 |
| Aditya Birla SG Corporate Bond Fund | Debt-Corporate Bond | 100 | NIFTY Corporate Bond Index | 6.43 | 7.09 |
Benefits of SWP
SWPs allow an investor to withdraw a small amount from their investment without messing with the entire amount. It is beneficial for investors as well as retirees or individuals who are looking for a practical approach to streamline savings into regular income. The following various benefits offered by SWPs:
1. Offer a stable and continuous income from your investment.
2. Allows you to manage regular or unavoidable expenses without withdrawing the entire amount.
3. Offer greater flexibility to choose the withdrawal amount and time intervals.
4. Unused investment yields returns and stays invested.
5. Reduced the emotional and mental breakdown of breaking investment schemes or policies to meet financial crises.
6. Offers potential tax advantages through strategic and comprehensive withdrawal scheduling.
How Does SWP Work?
SWP works in a systematic order. First need to invest your savings in mutual funds. You can either invest a huge amount in a lump sum or offer to invest monthly in small payments for a few years. After a few years, you can prefer to withdraw them slowly.
Once the investment is made successfully, an NAV unit is allocated, representing the value of the investor’s fund. The price of these units fluctuates according to the fluctuations in the market.
When the investor chooses to withdraw some amount from their funds through the SWP facility, the mutual fund house sells the investor’s respective NAV units proportionate to the withdrawal amount.
Once the units are sold successfully, the amount is credited to the investor’s bank account within one or two days.
Let’s understand this with an example. Suppose you have 20,000 NAV units with mutual funds, and the value of each NAV according to present market conditions is Rs. 40. You have opted for a SWP plan. The monthly withdrawal amount you choose is equal to Rs 20,000.
When your withdrawal date is due, the mutual fund house will sell your 500 units to pay you the required amount. Now, you have 15,000 NAV units left. If in the next month the price of a unit increases to Rs. 50, the mutual fund house has to sell approximately 400 units to pay you the desired sum. The process will continue until you withdraw your entire savings.
The Bottom Line
An SWP offers an outstanding opportunity for the investor to invest in high ROI mutual funds and, at the same time, withdraw a portion of the investment to meet regular expenses. SWP outlines a systematic process for withdrawal. This does not affect the whole investment, offering greater security. From retirees to investors, it is a flexible plan for everyone. Investing in mutual funds that offer a SWP plan is an informed and wise decision to protect your savings and meet your financial needs without stress and hassle.
Frequently Asked Questions
Which is better: SWP or FD?
SWP is comparatively much better than an FD. It offers the flexibility to withdraw a specific amount from the investment, while there is no such option with an FD.
What is the 4% rule in SWP?
The 4% rule is a distinctive and important rule for retirees. According to this rule, the retirees cannot withdraw more than 4% of their retirement. This initiative ensures that the retirement savings last throughout the lifetime of the retiree.
Is SWP exempt from tax?
No, SWPs are not exempt from tax. However, the investor’s principal amount remains tax-free. Only the capital gains are taxable.