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What is a Systematic Withdrawal Plan (SWP)

11 Nov 2021 0 COMMENT

1. Introduction

The Systematic Withdrawal Plan (SWP) is an intelligent way to allow the money to grow even as you withdraw the required cash at regular intervals. SWP will enable you to predetermine an amount withdrawn monthly with minimum damage to your invested amount. To simplify more about what is SWP, let's look at the example below.

Ms Jaya is a business owner. To date, she has invested regularly and collected a corpus of Rs.30 lacs. The investment tenure was about to end, but she didn't want to claim the whole amount at once. The main aim of creating this corpus was securing the retirement period and maintaining the same lifestyle with regular cash flow. In this case, she was suggested to opt for SWP (Systematic Withdrawal Plan). Here, she can invest the corpus as a lump sum and start an SWP as per her choice of amount and receipt date. She invests in SWP, which is giving her the estimated annual return of 10%. Ms Jaya wants to withdraw Rs.30,000 every month.

In this case,

Total Interest earned in one year on the investment = (30,00,000 x 10)/100=3,00,000.

Ms Jaya withdraws Rs. 30,000 every month, i.e. Rs. 3,60,000 at the end of the year.

Excess amount withdrawn from the total investment= 3,60,000 - 3,00,000 = 60,000.

Balance investment = 30,00,000 - 60,000 = 29,40,000.

In this example, at the end of the year, only Rs. 60,000 is deducted from Ms Jaya's investment, considering she is getting 10% returns annually on the investment. Being invested in Mutual Fund, the corpus has the chance of growing the remaining capital of Rs.29,40,000 to recover for the reduction in principal amount. Considering this, read further to know more about the Systematic Withdrawal Plan in Mutual Funds.

2.  What is SWP in Mutual Fund?

The SWP is a type of mutual fund investment where you mandate that a regular amount of money transfers from your mutual fund investment to your bank account regularly. For example, suppose you are looking for the investment option to allow your investment to grow and receive money from the corpus from time to time. The AMC (Asset Management Company) can credit the amount to your bank account on any day of the month, quarter, or year that you choose. SWP Plan generates cash flow by redeeming mutual fund scheme units at predetermined intervals. You will keep receiving the regular money through SWP for the period specified by you or until the entire balance of corpus is exhausted.

People who want to have a regular source of money in their account during their retirement days or who want a regular basis of money can opt for SWP.

3. Why Choose SWP?

Systematic Withdrawal Plan is the reverse of the Systematic Investment Plan (SIP). Whereas, In SIP, you regularly invest in a mutual fund scheme. SWP provides you with regular cash flow and allows your mutual fund investment to grow. There are three good reasons to opt for the systematic withdrawal plan.

i. Cash flow

Investing in mutual funds and withdrawing through an SWP is a great way to build a consistent income stream. As a result, this is highly convenient and useful for those who require consistent cash flow to meet regular expenses. Investing in an SWP is thus a good idea for someone nearing retirement and who wants to get a consistent amount of money at regular intervals.

ii. Growth of invested Corpus

When you invest in a mutual fund with the SWP option, your invested money won't be idle. Instead, the remaining invested money in the fund would continue to grow over the period.

iii.  Effortless Withdrawal

With SWP, you don't need to fill a form each time you withdraw the money. You just need to opt for the SWP, option once and the money would be credited to your bank account through an automated process on a given frequency of period with the pre-specified amount.

Additional Read - ICICI Direct: SIP Meaning & Benefits


So, if an investor understands what a systematic withdrawal plan is in a mutual fund, they will discover that SWP is a good strategy for ensuring a steady income stream. SWP is created with the needs, interests, and financial goals of investors in mind. You can meet your financial goals without having to go through the hassle of market timing by using tools like the Systematic Withdrawal Plan (SWP). You can even start an SWP for a member of your family to help them become financially self-sufficient.

Disclaimer :

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism.  The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein mentioned are solely for informational and educational purpose.