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Systematic withdrawal plan

An under estimated but unique Investment Strategy: Mutual Fund SWP-Systematic Withdrawal Plan

by Holistic 6 Comments | Filed Under: Mutual Funds

We can add drops of water to fill up a bucket, the drops may be big or small but nonetheless it will fill the bucket. In a reverse sequence we can draw out portions from the bucket when required and satisfy our needs. The world of mutual fund investing is no different.

The mutual fund Systematic Investment Plan (SIP) and the mutual fund Systematic Withdrawal Plan (SWP) are somewhat analogous in nature to the example of water stated above. While mutual fund SIP is a common and popular form of systematic investment in parts, the concept of SWP, the reverse of SIP, may not be known to everyone.

What is the full form of Mutual Fund SWP?

The full form of SWP w.r.t. mutual fund is SYSTEMATIC WITHDRAWAL PLAN.

What is Mutual Fund SWP?

What is the meaning of SWP in Mutual fund?

Mutual fund Systematic Withdrawal Plan (SWP) provides investors

  • with a specific amount of payout
  • at a pre-determined time intervals, like monthly, quarterly, half-yearly or annually.

Why opt for Mutual Fund SWP?

Investors in India, opt for Mutual Fund SWP for either of the two reasons:

  • To meet living requirements; usually after their retirement.
  • For the purpose of tax planning.

While retirement planning is the ideal area where Mutual Fund SWP can be very effective, some recent changes in the tax rules have boosted the efficacy of Mutual Fund SWP.

Tax Efficiency of Debt Mutual Fund SWP:

The dividend distribution tax (DDT) was raised to 28% for all non-equity funds- which included monthly income plans, ultra-short term funds, income funds, etc. In essence the dividend plan has become less lucrative due to the high incidence of taxation for taxpayers in all tax brackets, viz. 10.3%, 20.6% and 30.9%.

As a fallout of this development, the growth option is now more favored than the dividend option in the realm of mutual fund investment. Instead of the dividend option, investors can now switch to a Systematic Withdrawal Plan (SWP). These plans allow systematic withdrawal of money at specific time intervals starting from monthly to a yearly period.

A big advantage which investors can derive by opting for Mutual Fund SWP is that they are tax efficient. No tax is deducted on these mutual fund withdrawals; additionally the actual tax liability is much lower than the interest earned from bank FDs.

How Mutual Fund SWP benefits investors?

The utility of Mutual Fund SWP can be understood by examining a set of real life examples.

Example 1 for Mutual Fund SWP:

We have Mr Chakraborty, who is due to retire by middle of this year. He will be happy to receive a fixed amount of money in his account every month. Mr Chakraborty’s corpus stands at Rs. 10.00 lakhs. He wants to generate income through Mutual Fund SWP. The monthly requirement of Shri Chakraborty is pegged at Rs. 10000/-.

If hypothetically we consider that the mutual fund SWP gives a return of 9% p.a., the fund is going to last for 182 months, which means it is going to meet the needs of Mr Chakraborty for more than 15 years.

If the requirement for fund is lower than the average return percentage, then the fund will continue to meet the monetary requirement for ever.

Example 2 for Mutual Fund SWP:

Mrs. Paul has retired with Rs. 53,00,000 as separation benefit. Her children are well settled and she stays alone. The corpus received on retirement has to be invested suitably and it is decided that 45-50 percent of the total amount will be invested in equity while the balance (50-55 %) will be invested in debt instruments.

Rs,28,00,000 is invested in fixed income instruments to generate regular income. The balance Rs 2300000 is invested across different diversified equity schemes.

At present, since Mrs. Paul does not require any additional fund over and above what she receives, her fixed income savings are sufficient. However, over a period of time, say two years later, the returns from her fixed income schemes can become inadequate to cover her requirements.

It is at this juncture that Mrs. Paul can opt to avail the Mutual Fund SWP option. This withdrawal from her equity based funds will be tax free and this is an additional benefit received.

How to invest in Mutual Fund SWP?

You invest in regular mutual fund schemes. Then you execute the systematic withdrwal through SWP application forms.

This is like giving a standing instruction to withdraw regularly.

There are two ways to do mutual fund SWP.

Fixed sum Mutual Fund SWP:

In this method, you choose to withdraw a fixed aount at a regular interval like monthly/ quarlterly.

Capital Appreciation Mutual Fund SWP:

In this method, you choose to withdraw the excess amount over and above the principal invested at a regular interval.

Benefits of Mutual Fund SWP

From the above examples it is amply clear that the SWP option of the Mutual Funds has its definite advantages. The two major gains derived from this mutual fund SWP option are again dwelt upon:

1. Mutual Fund SWP and Regularity:

Mutual Fund SWPs’ provide the assurance of getting a fixed amount at a pre-determined time frequency. Among the other options, frequency and payout of the dividend paying monthly income plans are not certain or fixed beforehand.

Sometimes, if the fund cannot generate sufficient profits, you might have no dividends to be paid. Hence every month you will have different amounts coming in and some month there might be no money received. SWP is a definite boon in such a scenario.

2. Taxation of Mutual Fund SWP:

Mutual Fund SWP is a much better option as far as taxation is concerned. Even if the investor has to pay Long term/short-term capital gain on the sale of his investment, it will be better than paying for the dividend distribution tax (DDT) of 28%.

Things get better in case of Mutual Fund SWP from equity funds. As the long term capital gains from equity mutual funds are exempt in case of holding beyond a year, you end up paying no tax on the withdrawals.

Inflation Protection through Mutual Fund SWP:

Most of the fixed income instruments do not insulate the investor against the inevitable effect of inflation. The Mutual Fund SWP scores in terms of generating returns to keep up with inflation especially is one opts for the equity fund route.

If you have any comments or questions, write them in the comment box below.

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Comments

  1. neha says

    January 29, 2019 at 8:13 pm

    advised by an advisor to buy balanced fund and opt for swp (upto 9%) over divident payout option (because divident it may or maynot be declared) for 10 years; also assured principle amount invested may remain same if invested years are 10 and above..how far is that correct as i am retired person need monthly fixed income.

    Reply
    • Holistic says

      February 22, 2019 at 5:53 pm

      Hi Neha,

      Balanced Funds invest in equities as well. So it gets affected by stock market fluctuations. So keeping the principal intact is not possible either you withdraw (SWP) or not.

      However, regular withdrawals can be done by a combination of different mutual fund schemes. A detailed retirement withdrawal plan needs to be worked out based on your corpus and required monthly income.

      Reply
  2. Ashoka says

    November 11, 2017 at 11:36 am

    If SWP process is done through distributor, whether commision will be earned by distributor like doing SIP?

    Reply
    • holistic says

      November 21, 2017 at 4:54 pm

      SWP is nothing but withdrawing from mutual fund investments regularly. There will not be any commission for the withdrawals.

      Reply
  3. Rahul says

    August 18, 2017 at 9:34 am

    I want to apply swp for HDFC top 200 fund online.Could you please let me know the process for the same. Also pls suggest if this is the right fund to invest in September.Also if you can pls guide on funds for swp.

    Reply
    • holistic says

      August 18, 2017 at 11:38 am

      Dear Rahul,

      To invest in HDFC MF, you may visit https://investor.hdfcfund.com/mfonline/

      Regarding the right funds for you to do SWP, it depends on other factors like your requirement, existing portfolio, and existing asset allocation.

      You may approach a professional financial planner for help.

      Ramalingam

      Reply

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aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
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Sridhar
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Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
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I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
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I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
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I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
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Jey S
Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
Lionel Faber
Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
Sridhar
Sridhar
8. September, 2021.
Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
Swetha Vasanth
Swetha Vasanth
6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
Joseph Mathias
Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
Srinvas Kannan
Srinvas Kannan
30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
I got a free first time consultation. I got my doubts resolved. They also gave additional advises for investment planning which was also useful.
Nellai B
Nellai B
26. June, 2021.
I have been associated with them for the past three years. They are very professional and polite in answering all our questions. I have complete trust in their suggestions. I strongly recommend for anyone. I am looking forward to have strong and successful association with them.
Google rating score: 4.4 of 5,
based on 61 reviews

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