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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SIP Plans with Life Cover

  • Insurance Companies
  • Mutual Funds
Returns
Fund Name 3 Years 5 Years 10 Years
Virtue II PNB Metlife 17.59% 26.28%
17.97%
View Plan
Pure Equity Birla Sun Life 16.46% 22.3%
16.37%
View Plan
Large Cap Equity Fund Tata AIA 15.6% 22.37%
16.08%
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Pure Stock Fund Bajaj Allianz 16.09% 21.14%
15.63%
View Plan
Grow Money Plus Fund Bharti AXA 12.28% 19.29%
15.52%
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Diversified Equity Fund HDFC Standard 12.23% 18.23%
14.75%
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Growth Super Fund Max Life 11.9% 17.66%
13.67%
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Equity Fund SBI 12.46% 17.13%
13.21%
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Bluechip Fund ICICI Prudential 10.9% 16.61%
12.33%
View Plan
Growth Plus Fund Canara HSBC Oriental Bank 10.71% 14.33%
11.37%
View Plan

Updated as of Oct 2024

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  Returns
Fund Name 3 Years 5 Years 10 Years
Active Fund QUANT 24.92% 31.48%
21.87%
Flexi Cap Fund PARAG PARIKH 20.69% 26.41%
19.28%
Large and Mid-Cap Fund EDELWEISS 22.34% 24.29%
17.94%
Equity Opportunities Fund KOTAK 24.64% 25.01%
19.45%
Large and Midcap Fund MIRAE ASSET 19.74% 24.32%
22.50%
Flexi Cap Fund PGIM INDIA 14.75% 23.39%
-
Flexi Cap Fund DSP 18.41% 22.33%
16.91%
Emerging Equities Fund CANARA ROBECO 20.05% 21.80%
15.92%
Focused fund SUNDARAM 18.27% 18.22%
16.55%

Updated as of Oct 2024

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Disclaimer: † Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

What is a Systematic Withdrawal Plan (SWP)?

SWP's full form is Systematic Withdrawal Plan. SWP is a facility offered by Unit Linked Insurance Plan (ULIP) where you can withdraw a fixed amount of money at regular intervals (monthly/ quarterly/ annually) from your insurance. 

This investment strategy helps 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 a SWP plan from the list mentioned below:

Step 1: Set an Investment Portfolio

The portfolio is designed to generate potential returns over time. You can use an SIP Return Calculator to plan your investment in these financial instruments.

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 a 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.

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 insurance fund can go down, which could lead to a reduction in the amount of withdrawn money.

  • Withdrawal Charges change the line to: Some insurance companies levy withdrawal charges, which can reduce the amount of money available for withdrawal.

  • Inflation Risk: If 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.

FAQs

  • What is a systematic withdrawal plan?

    A systematic withdrawal plan (SWP) is a method of withdrawing money from a ULIP 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.
  • How SWP works?

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

    A SWP calculator is an online tool that helps you to calculate the monthly withdrawals from your ULIP 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.

Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*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.
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
~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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