Systematic Withdrawal Plan (SWP)

An SWP allows an investor to withdraw a designated sum of money and units from the fund account at pre-defined regular intervals. It allows investors a certain level of independence from market instability and helps in avoiding market timing. The investor can reinvest the redeemed cash in another portfolio or use it as a source of regular income.

Advantages

Regular Income - SWP helps in creating a regular flow of money from investments on a periodic basis i.e. on a monthly or quarterly basis.

Tax Benefit - Instead of selling all the units at once, spanning the income across multiple intervals can lower the total tax. It is a tax efficient way of receiving regular income.

Avoid market fluctuations - It saves an investor from market fluctuations, as regular withdrawal averages out return value.

How does an SWP work?

An SWP allows you to withdraw a fixed sum of money every month or quarter depending on the option chosen and instructions given by you.

Let's say Ashish has 10,000 units in a mutual fund scheme on 1-Dec-11. He intends to withdraw 6,000 every month through SWP.

Date	Opening Balance (Units)	NAV	Units Redeemed	Closing Balance
1-Dec-11	10000	20	300 (6000/20)	9700
1-Jan-12	9700	18	333.33 (6000/18)	9366.67
1-Feb-12	9366.67	22	272.73 (6000/22)	9093.94

In this manner, units from mutual fund holdings will be redeemed in a systematic way to provide the investor with regular income.

Types of SWP

SWP is usually available in two options:

Fixed Withdrawal: In a fixed withdrawal option, the investor specifies the amount he wants to withdraw from his investment on a monthly/quarterly basis.

Appreciation Withdrawal: In an appreciation withdrawal option, the investor withdraws only the appreciated amount on a monthly/quarterly basis.

An SWP can help investors who require liquidity as it permits them to access their money precisely when they need it to meet their needs.