Systematic Withdrawal Plan - SWP

SWP or Systematic Withdrawal Plan is a financial investment strategy that allows you to withdraw a fixed amount of money from your investment portfolio at regular intervals. This helps you to ensure a consistent cash flow while also maintaining the potential for investment growth. Read on to know more about SWP in detail.

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Start SIP with as low as ₹1000
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No hidden charges
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Save upto ₹46,800 in Tax
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  • Insurance Companies
  • Mutual Funds
Returns
Fund Name 3 Years 5 Years 10 Years
Top 200 Fund Tata AIA 26.72% 27.01%
20.76%
View Plan
Virtue II PNB Metlife 24.45% 22.83%
18.66%
View Plan
Pure Equity Birla Sun Life 23.41% 19.4%
17.94%
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Growth Opportunities Plus Fund Bharti AXA 20.27% 18.65%
17.15%
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Pure Stock Fund Bajaj Allianz 19.12% 17.41%
16.85%
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Blue Chip Fund HDFC Standard 16.13% 14.55%
14.23%
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Growth Super Fund Max Life 16.37% 15.04%
14.01%
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Multi Cap Growth Fund ICICI Prudential 17.36% 13.61%
13.57%
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Equity Fund SBI 16.9% 14.63%
13.5%
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Equity II Fund Canara HSBC Oriental Bank 15.99% 12.31%
11.69%
View Plan

Updated as of Apr 2024

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  Returns
Fund Name 5 Years 10 Years RSI
Active Fund QUANT 27.80% 23.96%
21.08%
Large and Mid Cap Fund QUANT 23.27% 22.69%
19.64%
Flexi Cap Fund PARAG PARIKH 23.90% 20.22%
20.15%
Large and Mid Cap Fund EDELWEISS 20.32% 18.01%
16.76%
Equity Opportunities Fund KOTAK 20.22% 18.98%
17.44%
Large and Midcap Fund MIRAE ASSET 21.11% 24.56%
23.01%
Flexi Cap Fund PGIM INDIA 21.48% -
15.13%
Flexi Cap Fund DSP 19.48% 17.73%
15.82%
Emerging Equities Fund CANARA ROBECO 18.91% 22.92%
20.84%
Focused fund SUNDARAM 18.22% 16.55%
15.16%

Updated as of Apr 2024

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What is a Systematic Withdrawal Plan (SWP)?

SWP full form is Systematic Withdrawal Plan. SWP is a facility offered by Unit Linked Insurance Plan (ULIP) and mutual funds^^ where you can withdraw a fixed amount of money at regular intervals (monthly/ quarterly/ annually) from your market-linked investment funds. 

This investment strategy help individuals to generate regular income without disturbing their principal investment. This makes it an ideal option for retirees or those seeking a consistent cash flow. 

When setting up an SWP, you can determine the following terms:

  • Amount you wish to withdraw

  • Frequency of withdrawals

The remaining funds in your investment portfolio continue to be invested according to your chosen investment plan strategy. In order to invest in a right option, SWP calculator helps compute your matured amount as per your monthly withdrawals. 

What are the Features of a Systematic Withdrawal Plan?

The key features of a Systematic Withdrawal Plans are as follows:

  • Regular Income: SWP plan allows you to receive a predetermined amount of money at regular intervals. This feature provides a reliable income stream. 

  • Flexibility: Plan offers the flexibility to choose the withdrawal frequency and the amount to be withdrawn as per your needs. 

  • Investment Continuity: With an SWP, the remaining funds in the investment portfolio continue to be invested. You still have the potential to benefit from market returns and the growth of their investments

  • Diversification: SWP enables you to diversify your income sources. This allows you to spread your risk and potentially enhance your overall portfolio performance

How Does a SWP Work?

Let us learn the working process of an SWP plan from the list mentioned below:

Step 1: Set an Investment Portfolio

Your portfolio may include various financial instruments like,

  • ULIP Funds

  • Mutual Funds

  • Exchange-Traded Funds (ETFs)

  • Stocks

  • Bonds

The portfolio is designed to generate potential returns over time.

 Disclaimer: “Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.”

Step 2: Withdrawal Parameters

You can determine the following withdrawal parameters for the SWP:

  • Withdrawal frequency (monthly/ quarterly/ annually)

  • Withdrawal amount for each interval

Step 3: Calculation of Withdrawal Amount

Based on your chosen withdrawal amount and frequency, the SWP provider calculates the total amount to be withdrawn from the investment portfolio for each withdrawal interval.

The amount is fixed as per the following factors:

  • Fixed Sum

  • Percentage of Portfolio Value

You can use an SWP calculator to calculate your withdrawal amount and maturity returns.

Step 3: Execution of Withdrawals

The SWP provider initiates the withdrawal from the investment portfolio at each predetermined interval and transfers the specified amount to the investor's designated account.

Step 4: Investment Continuity

The remaining funds in the investment portfolio continue to be invested according to the investor's chosen investment strategy.

Step 5: Monitoring and Adjustments

You can monitor the SWP and the performance of the investment portfolio. Adjust the withdrawal amount, frequency, or investment strategy to align with changing financial goals, market conditions, or personal circumstances.

What are the Benefits of a SWP?

There are several benefits of buying a SWP as part of your investment strategy, which are as follows:

  • Cash Flow Management: Efficient cash flow management as you can plan and budget your expenses effectively. This ensures that you have the necessary funds available without liquidating your entire investment.

  • Market Timing: Instead of trying to predict market movements and selling investments all at once, SWP allows you to systematically sell a portion of your investment holdings at regular intervals. This approach can help smooth out the impact of market volatility and poor investment decisions.

  • Disciplined Approach: SWP encourages a disciplined investment approach as you commit to a predetermined withdrawal schedule. This helps you to stay focused on your long-term investment goals and avoid impulsive decisions.

  • Good option for Retirees: SWP is an ideal option for your retirement as it helps in redeeming regular cash flow from your existing or current investments. 

  • Reinvestment Potential: SWP allows the opportunity to reinvest excess funds in other investment options. This will enable you to potentially benefit from market growth by consistently reinvesting your surplus funds, maximizing the overall return potential.

  • Tax Benefits:  TDS is not deducted on SWP withdrawals, unlike on SIP Investment. But, capital gains will be taxed as per the withdrawal amount and type of scheme. 

Here are capital gains tax for various mutual funds:

Types  Equity Mutual Funds  Balanced Mutual Funds  Debt Mutual Funds 
Capital gain tax – Short term 15% 15% According to tax slab 
Capital gain tax – Long term 10% without indexation  10% without indexation 20% after indexation

**SWP calculator can be used to estimate how much investor can withdraw from his/her lump sum investments. 

What are the Risks Involved in a Systematic Withdrawal Plan?

Here are some of the risks associated with SWPs:

  • Market volatility: The value of the units in the mutual fund can go down, which could lead to a reduction in the amount of withdrawn money.

  • Withdrawal charges: Some mutual funds charge withdrawal charges, which can reduce the amount of money available for withdrawal.

  • Inflation Risk: f the withdrawal amount remains fixed over time, the purchasing power of the income stream may diminish as inflation erodes the value of money. It is essential to consider adjusting the withdrawal amount periodically to keep pace with inflation.

  • Liquidity Risk: Once funds are invested in an SWP, they may not be readily available for unexpected expenses or emergencies.

  • Tax Implications: Withdrawals made through SWP may have tax consequences.

In Conclusion

A Systematic Withdrawal Plan (SWP) offers several benefits, including regular income, cash flow management, and a disciplined approach to investing. However, it also comes with risks like market volatility, inflation, longevity, liquidity, tax implications, and dependence on investment performance. Therefore, it is crucial to understand the risks involved before making a decision.

FAQ's

  • What is a systematic withdrawal plan?

    A systematic withdrawal plan (SWP) is a method of withdrawing money from a ULIP, mutual fund, or SIP plan at regular intervals. With an SWP, you can withdraw a fixed amount or a percentage of your investment each month, quarter, or year. You can also choose to withdraw from a specific fund or a combination of funds.
  • Is SWP a good idea?

    Whether or not SWP is a good idea depends on various factors, including an individual's financial goals, risk tolerance, and specific investment circumstances. Here are some considerations to keep in mind when evaluating SWP:
    • SWP can be suitable for individuals who require a steady stream of income during their retirement years or for meeting specific financial obligations

    • SWP can provide a sense of stability and mitigate the impact of market volatility, as it allows for consistent withdrawals irrespective of market conditions

    • The portfolio should be appropriately diversified to manage risk and generate consistent returns

    • SWP can have tax implications depending on the type of investments held and the specific tax regulations in your jurisdiction

  • What is the difference between a Systematic Withdrawal Plan and SIP?

    SWP involves withdrawing money from an existing investment portfolio to generate income, while SIP involves regular investments into a portfolio to accumulate wealth over time. SWP focuses on developing cash flow, while SIP focuses on building assets. SIP calculator online tool can be used to analyse the SIP returns.
  • What is SWP in Mutual Funds?

    In the context of mutual funds, SWP stands for Systematic Withdrawal Plan. It is an investment strategy that allows investors to withdraw a predetermined amount of money from their mutual fund investments at regular intervals.
  • How SWP works?

    SWP (Systematic Withdrawal Plan) allows investors to withdraw a predetermined amount at regular intervals from their mutual fund investments, providing a steady income stream while keeping the remaining investments intact.
  • How to Invest in SWP mutual fund?

    To invest in a Systematic Withdrawal Plan (SWP) mutual fund, you can follow these steps:
    • Choose a mutual fund that align with your investment objectives, risk tolerance, and financial goals

    • Complete the necessary documentation, including the application form, Know Your Customer (KYC) documents

    • Determine the SWP parameters on the amount you wish to withdraw and the frequency of withdrawals

    • Submit the SWP request specifying the withdrawal amount, frequency, and other relevant details

    • Monitor your SWP withdrawals and regularly review your investment performance and financial goals

  • How SWP mutual fund works?

    An SWP calculator is an online financial tool to calculate your returns and withdrawals in a fast and convenient way. Here is how it works:
    • You choose a mutual fund that you want to invest in

    • You decide how much money you want to withdraw each month

    • The mutual fund will sell a certain number of units from your investment each month to generate the desired amount of money

    • The money will be deposited into your bank account

  • What is a SWP calculator?

    A SWP calculator is an online tool that helps you to calculate the monthly withdrawals from your ULIP fund or mutual fund investment and the total value of the investment after withdrawal. It is a simple and easy-to-use tool that requires you to enter a few details in order to give the total investment and withdrawal amount along with the final value of the investment after all withdrawals.

+For Mutual Fund midcap category Returns https://www.morningstar.in/tools/mutual-fund-category-performance.aspx & for Insurance midcap fund category Returns- https://www.morningstar.in/tools/insurance-fund-category-performance.aspx
*Past 10 Year annualised returns as on 01-12-2023
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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