How much do you know about Systematic Withdrawal Plans (SWPs)?

By Advisorymandi
23-August-2018 9:22:32 AM

Have you ever heard of Systematic withdrawal plans (SWPs)?

If your answer is in ‘No’ then it is alright! In our article, we will help you to understand the systematic withdrawal plans or you can just simply say SWPs.

What is Systematic Withdrawal Plans (SWPs)?

Systematic withdrawal plans are also known as reverse SIPs. Systematic investment plans is a smart mutual fund investing mode where you invest a certain pre-determined amount of money at a regular interval of time. This interval of time could be weekly, monthly, or quarterly. In a reverse sequence, the mutual fund systematic withdrawal plans (SWPs) allow you to withdraw at fixed intervals (weekly, monthly, and quarterly). Moreover, the amount can be selected by the investor.

To better illustrate this:

Let’s assume an investor has invested Rs. 1,00,000 in a scheme, she can set up an SWP to withdraw Rs. 10,000 every month on a specific date for 10 months.

This will allow the investor to redeem the money from the fund as per the requirement.

Benefits of Mutual Fund SWPs

From the above-mentioned example, it is amply clear that the systematic withdrawal plans of the mutual funds have its definitive advantages.

  • Unlike dividend plans, the mutual fund SWPs provide the fixed-amount at a pre-determined time frequency. This facility is very rare in other options. In fact, if the fund can’t generate enough profits, you might have not dividends to be paid. So, instead of the irregular flow of payouts or none, it is better to invest with mutual fund SWPs which is a definite boon in the investing field.
  • Tax planning is another reason why people opt for mutual fund SWPs. It is a much better option when it comes to taxation. Mutual fund SWPs are so taxed efficiently that there is no tax deduction on redeeming money from the fund. Moreover, the tax liability is very low compared to the interests earned from bank Fixed Deposits (FDs). Even if the investor has to pay Long-term Capital Gain (LTCG) or Short-term Capital Gain (STCG) on the sale of her investment, still it will be better than paying for the DDT of 13.5 percent.
  • And at last, the protection from inflation risks. Unlike bank FDs, the mutual fund SWPs are best for insulating against the effect of inflation.

Final Thoughts: –

Hope, this article helped you understand the mutual fund systematic withdrawal plans. One who is looking for consistent returns in a fixed interval of the time period should opt for SWPs over dividend plans. It is because, in dividend plans, the dividends payout based on the actual returns generated by the fund. However, in the case of the systematic withdrawal plan, one can redeem money consistently. Also, they are tax efficient.
Nevertheless, if you have any query or would like to add something then don’t forget to mention in the comment section below.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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