How about if you get regular income every month from whatever investment you make?
Yes, you can also get regular income from your investments in Mutual Funds. For this you have to invest in Systematic Withdrawal Plan (SWP).
What is Systematic Withdrawal Plan (SWP)?
Systematic Withdrawal Plan (SWP) is a one-of-a-kind facility. Through this, investors get back a fixed amount from Mutual Fund Schemes. Investors themselves choose the option of how much money to withdraw in how much time. They can do this on a monthly or quarterly basis. By the way, the Monthly Option (Regular Monthly Income) is more popular. If the investor wants to withdraw only a certain amount or if he wants, he can withdraw the Capital Gains on the investment.
How can I start SWP?
SWP can be started at any time. It can be started as soon as you make the first investment. If you are investing in any scheme, then you can activate the SWP option in it. It can be started anytime for regular cash flow requirement. To activate the SWP, you need to fill in the instruction slip in the AMC stating the folio number, frequency of withdrawal, date of first withdrawal, bank account receiving the money.
What is SWP Funding?
Systematic Withdrawal Plan (SWP) works just like Systematic Investment Plan. Systematic Withdrawal Plan is a Money Key for investors. In this you can withdraw your money at regular period. This ensures that the cash flow remains with the investor and does not have to wait for long-term investments to be withdrawn. There is no hassle of locking period.
What to know before starting SWP?
If your investment is in debt funds then you are getting 8% return. If you are withdrawing 10% annually, then you are spending capital. This can reduce your invested capital. Invest in debt funds only as much as you need in 5 years. Put the extra amount in a hybrid fund.
How does SWP work?
You must specify the amount/date/duration of your SWP.
Money will go into your account every month.
This money comes from selling units from your fund.
If the money in the fund runs out, the SWP will be closed.
Difference between SWP and SIP?
In SIP every month the fixed amount is deducted from your account.
The amount deducted from the account goes for investment in mutual funds.
The amount specified in the SWP gets credited to your bank account.
The amount of SWP comes from the sale of mutual fund units.
These precautions are necessary in SWP
Never run SWP with Equity Mutual Fund.
When the market falls, your fund gets affected.
More units will have to be sold for the prescribed amount.
Doing so will exhaust the portfolio very quickly.
Debt/liquid funds are a better option for SWP.
Advantages of SWP
Investors can choose the amount as per the requirement.
Expect good returns by staying invested in the market.
Good option to beat inflation.
Can withstand market volatility
How much tax on investment in SWP?
STCG is levied on equity held less than 1 year.
STCG on less than 3 years to date
If profit exceeds 1 lakh in equity, tax will be levied.
Tax will be levied on redemption of equity mutual funds.
What to keep in mind?
While doing SWP you have to take care of the tax liability.
Every withdrawal is considered a redemption.
In such a situation, you have to pay capital gains tax on them.
Capital gains are levied as per the prescribed tax slab.
So, SWP (Systematic Withdrawal Plan) article is clear and if you have any other doubts regarding to SWP then you can post your query.
