Building wealth is one thing and enjoying its benefits seamlessly is quite another. We have all heard about the virtues of SIP (Systematic Investment Plan), which facilitates regular investments and helps build wealth in a disciplined manner. Yes, you have invested for a long time and built a significant corpus. But what are your options if you want regular income from your investments? Do you withdraw the corpus entirely and deposit it in your bank account, or do you redeem some units of your mutual fund investment as and when required?
Clearly, the withdrawal options mentioned don’t look enticing. SWP, or Systematic Withdrawal Plan, is your best bet to generate regular income from your investments. An SWP allows investors to withdraw a fixed amount from the accumulated corpus at fixed intervals. The remaining corpus stays invested in the mutual fund scheme, earning the benefits of compounding.
Read on to learn more about SWP and the best funds for SWP.
What is SWP in mutual fund?
An SWP (Systematic Withdrawal Plan) is a mutual fund facility that enables regular withdrawals from the accumulated corpus in a pre-decided, systematic manner. An SWP is very useful in generating regular cash inflows during retirement.
When starting an SWP, you can choose the withdrawal amount, the frequency of withdrawal, and the duration according to your needs. The best funds for SWP in India provide liquidity to investors, allowing them to generate a suitable regular income, making it a good option for retirees.
Here are the key features of an SWP:
- Provides a source of regular income to investors.
- Enables investors to withdraw a fixed amount from the accumulated investment at scheduled regular intervals.
- Investors can choose the withdrawal amount, frequency, and duration of SWP.
- Instills a disciplined approach to withdrawal, ensuring that investors do not deplete their investments.
- The remaining corpus enjoys the benefits of compounding as it stays invested in the mutual fund scheme and only the required amount is withdrawn at fixed intervals.
How does a systematic withdrawal plan work?
It is easy to start an SWP. But before you start an SWP, it is important to know how it works.
When you set up an SWP, a fixed amount of money will be withdrawn from your accumulated investment at regular intervals. Let’s understand the workings of the SWP with an example.
Suppose you have Rs. 10,00,000 invested in a mutual fund scheme divided into 1,00,000 units of Rs. 10 each. You decide to redeem Rs. 5,000 a month for the coming 6 months and thus you start an SWP. Here is how SWP will work.
| Month | NAV per unit | SWP Amount | Units Redeemed | Units left |
| Month 1 | 10.3 | 5,000 | 5000/10.3 = 485 | =1,00,000 – 485 = 99515 |
| Month 2 | 9.7 | 5,000 | 515 | 98999 |
| Month 3 | 11.5 | 5,000 | 435 | 98564 |
| Month 4 | 12.3 | 5,000 | 407 | 98158 |
| Month 5 | 10.6 | 5,000 | 472 | 97686 |
| Month 6 | 9.8 | 5,000 | 510 | 97176 |
Here, the SWP amount will be divided by the NAV on the day of withdrawal to determine the number of units to be redeemed. The remaining units will continue to stay invested until the coming month’s redemption, where the same process will be followed to determine the number of units to be redeemed.
How to start SWP in mutual funds online?
Here is how you can start SWP online.
- Tap on your investments.
- Select the fund from your portfolio that you want to start an SWP in.
- Tap and select the SWP option
- Enter the withdrawal amount
- Select the frequency
- Tap create SWP
This is how you can start an SWP from your existing investment. It is important to note that you need an accumulated amount in a mutual fund scheme for you to start an SWP.
Best SWP in Mutual Funds in India 2024 (Based on 3Y CAGR)
When it comes to investments, there is no one size fits all. This is especially true when looking for a fund to start a SWP because starting a Systematic Withdrawal Plan can be years if not decades into the future. This is because SWPs are widely used to generate regular income during retirement, which is decades away for people in their 20s or 30s.
You may switch investments from a high-risk to a medium-risk fund or vice versa as your career progresses and your age and life stages change. As your retirement approaches, you can start shifting your investments to a relatively stable, less volatile mutual fund so that your capital is preserved.
Here are the top 5 best mutual funds for SWP based on their 3-year CAGR.
| Fund Name | AUM (in cr) | CAGR 3Y (in %) | Expense Ratio (in %) |
| ICICI Pru Equity & Debt Fund | ₹34,733.08 | 23.66 | 0.99 |
| Quant Absolute Fund | ₹2,114.18 | 20.50 | 0.70 |
| Franklin India Equity Hybrid Fund | ₹1,806.96 | 16.62 | 1.03 |
| Canara Rob Equity Hybrid Fund | ₹10,152.64 | 14.96 | 0.56 |
| SBI Equity Hybrid Fund | ₹68,409.821 | 12.98 | 0.73 |
All data from Tickertape.in
Overview of the top 5 SWP mutual funds
Here is an overview of the best funds for SWP in India.
1. ICICI Pru Equity & Debt Fund
ICICI Prudential Equity & Debt Fund Direct-Growth is an Aggressive Hybrid mutual fund scheme, with an equity exposure between 65-80% and debt exposure between 20-35%. The fund has been active since November 3, 1999. As of 18th Sep 2024, the AUM of the fund is Rs. 39,090 Cr and has an expense ratio of 0.99%.
2. Quant Absolute Fund
Quant Absolute Fund Direct-Growth is an Aggressive Hybrid mutual fund scheme and has been active since 15th April 1996. The fund had an AUM of Rs. 2,295 Cr as of 18 Sep 2024, with an expense ratio of 0.70%. The fund has been consistently outperforming its peers in the same category.
3. Franklin India Equity Hybrid Fund
Franklin India Equity Hybrid Fund is an Aggressive Hybrid mutual fund scheme launched on 10th December 1999. The fund had an AUM of Rs. 2,029 Cr and an expense ratio of 1.03% as of 18 Sep 2024. In terms of composition, the fund invests in both equities (65-80% of its assets) and fixed-income instruments (20-35% of its assets).
4. Canara Rob Equity Hybrid Fund
Canara Rob Equity Hybrid Fund, an open-ended hybrid scheme investing predominantly in equity and equity-related instruments, was launched on 20th July 2007. The fund’s benchmark is the CRISIL Hybrid 35+65 – Aggressive Index. As of 18th Sep 2024, the fund had an AUM of Rs. 11,094 Cr and an expense ratio of 0.56%.
5. SBI Equity Hybrid Fund
SBI Equity Hybrid Fund Direct Plan-Growth is an Aggressive Hybrid mutual fund scheme launched on 31st December 1995. The fund has an AUM of Rs. 73,405 Cr and an expense ratio of 0.73%. Currently, the fund has a 72% allocation in Indian equities and the rest in debt.
Who can benefit from the top SWP funds?
Systematic Withdrawal Plan is ideal for people seeking a regular income stream from their investments. While Income Distribution Cum Capital Withdrawal (IDCW) plans of mutual funds can also provide periodic payouts, they are not as reliable as SWPs since the dividend declarations are at the discretion of the fund house.
Anyone who has considerable investments in a mutual fund scheme or a retiree who has received a lumpsum towards retirement benefits looking to generate regular income from retirement corpus can benefit from the SWP plan.
The individual should invest the retirement corpus in a mutual fund scheme and start an SWP plan, according to his needs. Someone who already has investments in a mutual fund scheme can start an SWP plan mentioning preferred criteria such as the amount, receiving date, and frequency.
Benefits of a Systematic Withdrawal Plan
Let’s look at the benefits of the best funds for SWP.
Tax Benefits
SWP allows you to spread your withdrawals over multiple financial years. Here, you can benefit from tax changes and potential tax rate decreases over the years. Additionally, if retirees opt for SWP, they can receive withdrawals at a lower tax rate as their regular income would have decreased, lowering their tax liability.
Rupee Cost Averaging
SWP redeems mutual fund units at fixed intervals. This will help you reduce the risk of panic selling a portion of your investment when the market is down. This will protect your portfolio from losing value when the market is on a decline.
Effective ways of using SWP
This is how you can effectively use SWP to make the most of it.
Establishing a steady secondary income stream
Using SWP is not limited to retirement. You can use SWP to create a secondary source of income. This can help you achieve financial freedom.
Building your retirement fund
Whether you have an employer’s pension plan or expect to receive lumpsum retirement benefits, you can start building a retirement corpus approximately five years ahead of retirement. You can gradually shift your investment to mutual fund schemes that match your risk appetite and initiate an SWP when you retire.
Capital preservation
An SWP allows you to preserve and grow your capital while giving you the desired regular income. Initiating an SWP will save you from liquidating your entire mutual fund investment at once.
Does SWP in mutual funds work best for retirees?
Yes. Of all the alternatives available to generate regular income, SWP works the best for retirees as it preserves capital while providing the required regular income.
Initiating an SWP is like creating a personalized pension plan that can be modified in the years to come as needs change.
Difference between SIP and SWP
SIP and SWP are somewhat opposite of each other. While SIP helps you invest in a disciplined way, SWP helps you liquidate your investments in a disciplined way. Here are the major differences between SIP and SWP.
| Basic | Systematic Investment Plan (SIP) | Systematic Withdrawal Plan (SWP) |
| Definition | SIP is a method of investing a fixed amount in a mutual fund scheme at regular intervals. | SWP is a method of withdrawing a fixed amount from a mutual fund scheme at regular intervals. |
| Purpose | To build a corpus through disciplined investments | Create a regular income stream from accumulated investments |
| Amount | You invest a fixed amount at regular intervals | You withdraw a fixed amount at regular intervals |
| Tax | Tax is applicable on redemption of investment | Tax is calculated only on the capital gains component of each SWP installment. Like SIP, the tax depends on the fund type and holding period. |
| Suitability | Suitable for long-term wealth creation. | Suitable for people looking to create a regular income, like retirees. |
Conclusion
SWP is a great way to create a steady income stream from your accumulated investments. The features that make SWP great are the automated redemption of units at a predetermined date that matches your cash requirements. This feature helps you preserve your capital and spread your redemption risk over time so that you can benefit from market cycles.
