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Systematic Withdrawal Plans


In essence, Systematic Withdrawal Plan (SWP) is the reverse of Systematic Investment Plan (SIP)

SIP allows you to make regular investments whereas SWP allows you to withdraw a pre-defined amount at fixed intervals from the amount you invested in Mutual Funds for growth. This facility is most sought after when in need for consistent cash flow to meet regular expenses. The amount to be withdrawn and its frequency is determined by the investor.

Let us better understand this with an example

Say you have invested an amount of Rs.50000 in a mutual fund scheme on January 01, 2017 at the Net Asset Value (NAV) of Rs.14.10. You would have received 3,546 units (Rs.50000 divided by Rs.14.10). You then decide to withdraw Rs.5000 from your fund on the 1st of every month. On the specified date, the requisite number of units will automatically be redeemed from your holdings and the proceeds paid to you through the preferred payment mode.

Here’s how your investment account will look

Jan 01, 2017 Amount Invested 50,000 NAV 14.1 Number of units received --> 3546
Date of SWP Amount withdrawn NAV Number of units redeemed Balance units
Apr 01, 2017 5000 14 357 3189
May 01, 2017 5000 14.3 350 2839
Jun 01, 2017 5000 14.5 345 2494
Jul 01, 2017 5000 14.7 340 2154
Aug 01, 2017 5000 15 333 1821
Sep 01, 2017 5000 14.8 338 1483
Oct 01, 2017 5000 15.2 329 1154
Nov 01, 2017 5000 15.3 327 827
Dec 01, 2017 5000 15.7 318 509

For illustrative purposes only; the actual scheme NAV may vary
No. of units have been rounded off for ease of understanding.

On studying the above table, you will notice that despite withdrawing 90% of your capital i.e. Rs.45000 of the initial Rs.50000 invested, you still are left with Rs.7990.51 (508.95 units multiplied by Closing NAV of Rs.15.7).

Thus, despite constant withdrawals you can still get growth on your invested money.

Rightly said, the best thing money can do is make more money.

Opting for SWP could be a good decision you take today for 3 main reasons

  • Regular cash flow: To help meet needs at intervals specified by you
  • No more idle money: Let it grow in Mutual Funds and be made available through an SWP
  • Minimal effort: Automate withdrawals for a specific time period by filling the form only once

So the next time you need regular cash flow for your child’s college expenses or to meet monthly needs, all you need to do is fill in basic information stating the name of the scheme, the start date and the amount you want to withdraw each time. You can then relax considering the withdrawal process will continue diligently till the date specified by you or till the folio balance exists, whichever is earlier. The SWP facility removes the need for repeated redemption transactions.