Systematic Withdrawal Plan (SWP) – Meaning, Benefits & Top SWP Funds to Invest

You’ve probably heard of Systematic Investment Plans (SIPs) – the hassle-free way to grow your wealth by consistently investing small amounts over time. SIPs have been the go-to strategy for building financial security and achieving long-term financial goals. But what about the other side of the coin? What happens when you’ve accumulated a sizable nest egg and are ready to enjoy the fruits of your financial prudence? Is there also a systematic ‘withdrawal’ tool too? Duh. That’s where Systematic Withdrawal Plans (SWP) step in. Let’s have a look at the best SWP for senior citizens now!

What is SWP in Mutual Fund?

SWP stands for Systematic Withdrawal Plan. The SWP meaning in mutual funds is an extended facility that enables you to withdraw money from your mutual funds in a systematic manner. In an SWP, you can choose your withdrawal amount, frequency and duration according to your needs. The systematic withdrawal plan (SWP) provides a steady income stream. The main advantage of the best SWP plans in India is it is especially useful for people who want to get a steady stream of income such as retirees. 

Here are some important features of a systematic withdrawal plan:

• Provides a regular stream of income.
• Systematically cash in your investment units at regular intervals.
• You can choose the amount, frequency, and start and end dates of the SWP plan.
• You can either withdraw a fixed amount or only the capital appreciation.

How Does a Systematic Withdrawal Plan Work?

Now that we know what is systematic withdrawal plan, let’s understand how a systematic withdrawal plan works with an example.

Let’s assume you have invested Rs. 1,00,000 in a mutual fund and want to withdraw a specific amount every month to maintain a steady income flow. Therefore, you decide to set up a SWP best plan to withdraw Rs. 5000 at a specific date of every month. The mutual fund’s Net Asset Value (NAV) is Rs. 20 per unit.

Additionally, when you set up a systematic withdrawal plan (SWP), you instruct the fund house to release funds at regular intervals (usually monthly, quarterly, or annually). Therefore, these funds get transferred to your bank account.

Now, let’s have a look at the SWP mutual funds return calculation process.

Calculate the Number of Units to Redeem

To withdraw Rs. 5,000, the AMC calculates how many mutual fund units need to be redeemed each month.

• Number of Units to Redeem = Withdrawal Amount / NAV
• Number of Units to Redeem = Rs. 5,000 / Rs. 20 = 250 units

Redemption Process

At the beginning of each month, the mutual fund will redeem 250 units from the investor’s holdings and credit Rs. 5,000 to the investor’s bank account.

Adjusted NAV

After the redemption, the NAV of the mutual fund may change. Let’s say the NAV after the first redemption is Rs. 22.

Calculate the New Number of Units

For the next month’s withdrawal, the investor needs to calculate how many units to redeem at the updated NAV.

• Number of Units to Redeem = Withdrawal Amount / NAV
• Number of Units to Redeem = Rs. 5,000 / Rs. 22 = 227.27 units (rounded to the nearest whole unit)

Redemption Process (Next Month)

At the beginning of the second month, the mutual fund will redeem 227 units (rounded) from the investor’s holdings at the new NAV and credit Rs. 5,000 to the investor’s bank account.

This process continues every month as long as the investor wants to receive regular withdrawals.

Steps	Details
Initial Investment	Rs. 1,00,000
Monthly Withdrawal Amount	Rs. 5,000
Mutual Fund’s NAV	Rs. 20 per unit
Number of Units to Redeem (Month 1)	Withdrawal Amount / NAV = Rs. 5,000 / Rs. 20 = 250 units
Redemption Process (Month 1)	At the start of the month, the mutual fund will redeem 250 units and credit Rs. 5,000 to the investor’s bank account.
Adjusted NAV (After Month 1)	Rs. 22 per unit (example)
New Number of Units (Month 2)	Withdrawal Amount / NAV = Rs. 5,000 / Rs. 22 ≈ 227.27 units (rounded to nearest whole unit)
Redemption Process (Month 2)	At the start of the second month, the mutual fund will redeem approximately 227 units (rounded) at the updated NAV and credit Rs. 5,000 to the bank account.

Suitable Mutual Funds for SWP

When it comes to choosing suitable Mutual Funds for SWP, the options can seem endless. However, we have listed down the best SWP mutual fund plans that you can check out.

Fund Name	Return XIRR (%)
SBI Equity Hybrid Fund	22.36
ICICI Prudential Equity & Debt Fund	21.4
Tata Hybrid Equity Fund	21.16
HDFC Hybrid Equity Fund	20.56
Nippon India Equity Hybrid Fund	20.42
Quant Absolute Fund	19.14
Aditya Birla Sun Life Equity Hybrid 95 Fund	19.11
Franklin India Equity Hybrid Fund	19.06
Canara Robeco Equity Hybrid Fund	18.42
PGIM India Hybrid Equity Fund	17.71

Factors to Consider Before Investing in SWP in Mutual Funds in India 2024

Before you choose the best systematic withdrawal plan and jump into investing in SWP investment schemes, it’s crucial to weigh some key factors. First, define your financial goals and the purpose of your SWP scheme and make sure that your specific mutual fund company is reputable.

Next, look at the best mutual funds for SWP track record in generating returns and its consistency in meeting its objectives. Also, learn more about its fees and charges (if any).

• Salary: Monthly SWP is a popular form of the systematic withdrawal plan. However, you can strategically opt for lump-sum withdrawal if you don’t want to receive money at regular intervals.

• Pension: You can also opt for the best SWP for monthly income if you like to increase your retirement corpus size. If planned properly, SWP in mutual funds can be an excellent option to receive the best SWP for monthly income post-retirement.

• Exit Load and Expenses: Check the fund’s exit load and expense ratio. Lower expenses can boost your SWP returns, and a minimal exit load can be beneficial if you need to withdraw prematurely.

• Tax Implications: Understand the tax implications of your systematic withdrawal plan, such as capital gains tax and dividend distribution tax. Opt for tax-efficient funds to maximize your SWP returns.

Overview of the Best SWP Mutual Funds

SBI Equity Hybrid Fund

Established under SBI Mutual Fund, this SWP scheme is an equity hybrid fund. The fund was launched on December 31, 1995.

Best fund for SWP aims to provide investors with long-term capital appreciation by primarily investing in a mix of equity and debt instruments. Thus, the SBI SWP plan offers the potential for growth through equity exposure while maintaining stability through debt investments.

ICICI Prudential Equity & Debt Fund

Launched by ICICI Prudential Mutual Fund, this scheme is a hybrid fun. It seeks to generate long-term capital appreciation by investing in a diversified portfolio of equity and debt securities. 

It aims to offer investors the benefits of equity growth potential while providing stability through debt instruments.

Tata Hybrid Equity Fund

Tata Mutual Fund offers the Tata Hybrid Equity Fund Direct Plan-Growth, an Aggressive Hybrid mutual fund established on January 1, 2013. With 11 years and 1 month of operation, it manages assets worth ₹3,624 Crores as of December 31, 2023, positioning it as a medium-sized fund in its category. This fund has a slightly higher expense ratio of 0.97% compared to similar Aggressive Hybrid funds. Its portfolio allocates 77.08% to equity and 17.99% to debt.

HDFC Hybrid Equity Fund

HDFC Hybrid Equity Fund Direct Plan-Growth, an Aggressive Hybrid mutual fund by HDFC Mutual Fund, has been operational for 11 years and 1 month since its launch on January 1, 2013. With assets under management (AUM) amounting to ₹22,235 Crores as of December 31, 2023, it stands as a medium-sized fund in its category. The fund allocates 69.60% to equity and 27.42% to debt. Its expense ratio, at 1.07%, is comparatively higher than most other Aggressive Hybrid funds.

Nippon India Equity Hybrid Fund

Nippon India Equity Hybrid Fund Direct-Growth, a product of Nippon India Mutual Fund, is an Aggressive Hybrid mutual fund with an 11-year history, launched on January 1, 2013. As of December 31, 2023, it manages assets worth ₹3,311 Crores, positioning it as a medium-sized fund in its category. With an expense ratio of 1.24%, it stands slightly higher compared to its counterparts. Presently, the fund allocates 73.75% to equity and 22.50% to debt.

Quant Absolute Fund

Quant Mutual Fund offers the Quant Absolute Fund Direct-Growth, an Aggressive Hybrid mutual fund scheme that has been active for over 11 years, since its launch on January 1, 2013. With assets under management totaling ₹1,678 Crores as of December 31, 2023, it falls within the medium-sized category of funds. This fund maintains a balanced portfolio with 75.89% allocated to equity and 23.64% to debt. Its expense ratio stands at 0.75%, consistent with other funds of similar nature.

Aditya Birla Sun Life Equity Hybrid 95 Fund

Aditya Birla Sun Life Equity Hybrid ’95 Fund Regular-Growth, an Aggressive Hybrid mutual fund from Aditya Birla Sun Life Mutual Fund, was launched on April 24, 1998, and has been operational for over 25 years. With assets under management (AUM) totaling ₹7,440 Crores as of December 31, 2023, it stands as a medium-sized fund in its category. Its expense ratio is 1.85%, slightly higher than the average for Aggressive Hybrid funds. Currently, the fund allocates 75.85% to equity and 20.65% to debt.

Franklin India Equity Hybrid Fund

Franklin Templeton Mutual Fund offers the Franklin India Equity Hybrid Fund Direct-Growth, an Aggressive Hybrid mutual fund established on January 1, 2013. With assets under management (AUM) amounting to ₹1,633 Crores as of December 31, 2023, it stands as a medium-sized fund within its category. The fund holds a 70.56% allocation to equity and 27.57% to debt. Its expense ratio, at 1.15%, surpasses that of most other Aggressive Hybrid funds.

Canara Robeco Equity Hybrid Fund

Canara Robeco Equity Hybrid Fund Direct-Growth, launched on January 1, 2013, has been active for 11 years and 1 month. Managed by Canara Robeco Mutual Fund, it holds ₹9,746 Crores in assets as of December 31, 2023, making it a medium-sized fund in its category. With an expense ratio of 0.61%, lower than many other Aggressive Hybrid funds, it allocates 71.98% to equity and 20.44% to debt.

PGIM India Hybrid Equity Fund

PGIM India Mutual Fund offers the PGIM India Hybrid Equity Fund-Growth, an Aggressive Hybrid mutual fund scheme. Launched on January 15, 2004, this fund has been operational for 20 years. As of December 31, 2023, it manages assets worth ₹217 Crores, positioning it as a medium-sized fund in its category. With an expense ratio of 2.34%, it exceeds the typical charges of other Aggressive Hybrid funds. Presently, the fund allocates 77.29% to equity and 19.56% to debt.

Benefits of a Systematic Withdrawal Plan (SWP)

The benefits of a Systematic Withdrawal Plan (SWP) are multifaceted. Let’s have a look at the benefits of the best systematic withdrawal plan down below.

Tax Benefits

• Capital Gains Tax: When you set up an SWP, you have control over the timing and amount of your withdrawals. You can spread your withdrawals over multiple financial years to stay within the lower tax brackets, potentially reducing the tax impact.

• Dividend Distribution Tax (DDT): Some mutual fund schemes, such as equity-oriented funds, may not have a Dividend Distribution Tax when you opt for a systematic withdrawal plan as compared to receiving regular dividends. This can result in tax savings for investors.

Type	Short-Term Capital Gains Tax	Long-Term Capital Gains Tax
Equity Mutual Funds	15%	10% without any indexation
Balanced Mutual Funds	15%	10% without any indexation
Debt Mutual Funds	Depends on the tax slab	20% without any indexation

Rupee Cost Averaging

• Regular Withdrawals: With SWP, you withdraw a fixed amount at regular intervals. When the market is doing well and NAV is high, fewer units need to be sold and vice versa, this means that you may sell more units when the market is down (low NAV) and the vice versa if the market is performing well (high NAV). 
• Reduced Market Timing Risk: A systematic withdrawal plan reduces the need for trying to time the market. Instead of attempting to sell at the right market peak, SWP allows you to stick to a disciplined withdrawal strategy, potentially mitigating the risk associated with market volatility
• Risk Mitigation: By systematically withdrawing a fixed amount, you are less exposed to the risk of selling a significant portion of your investments during market downturns, which can erode your portfolio’s value.

Effective Ways of Using SWP

Below are some effective strategies for utilizing an SWP:

• Establishing a Steady Secondary Income Stream: In today’s economic climate, having an additional income source is essential to cope with the escalating cost of living. Investing in Mutual Funds and utilizing SWP enables the creation of a consistent secondary income.

• Building Your Own Retirement Fund: Regardless of whether you have an existing pension plan, you can construct a corpus approximately five years before retirement and allocate it into a mutual fund scheme based on your risk appetite. Upon retirement, initiating an SWP allows you to generate your own pension fund.

• Safeguarding Your Investment Capital: If you prefer to avoid high-risk investments, initially allocating funds to Arbitrage Mutual Fund Schemes can be beneficial. These schemes provide assured returns with minimal risk. Opting for the dividend option and reinvesting dividends in a debt scheme through SIPs can further protect your capital. Eventually, initiating a SWP enables you to receive regular income without jeopardizing your initial investment.

Does SWP in Mutual Funds Work Best for Retirees?

Systematic Withdrawal Plans (SWP) in mutual funds offer retirees an ideal solution for their financial needs during retirement. As retirees seek a reliable income source, they can utilize their retirement savings, gratuity, or corpus and select the right mutual fund schemes to set up an SWP plan.

With the best SWP funds, retirees can enjoy the security of receiving a consistent income while keeping the remainder of their investments poised for potential growth over time. It’s akin to creating a customized pension plan that aligns with your specific financial requirements.

Moreover, just as a Systematic Investment Plan (SIP) spreads the cost of purchase, SWP mutual fund scheme evens out the cost of withdrawals, making it an invaluable tool for retirees seeking financial stability during their golden years.

To Wrap It Up…

To conclude, a Systematic Withdrawal Plan (SWP) is a financial tool that offers a multitude of benefits, from providing a regular income stream to retirees to enabling disciplined withdrawals while keeping investments intact. However, it’s essential to tailor your SWP investment strategy to your specific goals and consult with financial experts when necessary to make the most of its advantages.

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