How SWP works?

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What is Systematic Withdrawal Plan (SWP)?​

Systematic Withdrawal Plan is used to redeem your investment from a mutual fund scheme in a phased manner. Unlike lump sum withdrawals, SWP enables you to withdraw money in installments. It can be viewed as an opposite of SIP. In SIP, you channelize your bank account savings into the preferred mutual fund scheme. Whereas in SWP, you channelize your investments from the scheme to the savings bank account. It is one of the strategies to deal with market fluctuations.

With the Systematic Withdrawal Plan, you can customize the cash flow as per your requirement. You can choose to either withdraw just the capital gains on your investment or a fixed amount. This way you will not only have your money still invested in the scheme, but you will also be able to access regular income and returns. The money that you withdraw can be used to reinvest in some other fund or can be retained by you in the form of cash.

How to Set up an SWP?

You need to fill up an SWP form and submit it at the office of the AMC (fund house) concerned. You have to specify the SWP amount and duration of the SWP in the form. If you have opened an online account with an aggregator, you may be able to set up the SWP by filling up an online form instead. If your bank account is registered with the mutual fund, your SWP amount will directly be remitted into your bank account through ECS (Electronic Clearing Service).

There are two options for a Systematic Withdrawal Plan (SWP):

  • Fixed Periodic Withdrawal

A fixed periodic withdrawal allows the unitholder to withdraw a fixed sum on regular intervals, say monthly. The mutual fund house will sell units equivalent to the SWP amount and transfer the amount to the investor’s account.

  • Appreciation Withdrawal

In the appreciation withdrawal method, mutual fund units holder makes the choice to withdraw capital appreciation on his fund at a fixed frequency. Suppose an individual has invested Rs. 10 lakh in a mutual fund which generates returns at an average of 1.5% per month. If the investor picks up a monthly SWP plan under appreciation withdrawal, about Rs. 15,000 per month would be credited to his account.

While in the fixed withdrawal plan, the corpus may deplete over a period of time, there is no such possibility in the appreciation withdrawal plan as only capital appreciation gets transferred in the form of an SWP.

Example: Click to see real life example