Mutual Funds
by 5paisa Research Team Last Updated: 2023-02-03T11:26:01+05:30
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A Systematic Withdrawal Plan, also known as SWP, is optimised with the help of software to suit your income goals. A SIP, on the other hand, is based on a fixed amount that is invested in a fund at regular intervals for a predefined period.

SWP is one of the most popular methods for systematic investments in mutual funds. It is designed to create wealth for investors by investing in equity-oriented MFs. The advantage of SWP over SIP is that investors can withdraw money from their investments without incurring any penalty or tax liability.

SWP in Mutual Funds

Investors make deposits at regular intervals using the SWP option available with their MF distributors. These regular deposits are used to buy units of an MF scheme periodically over a tenure decided by the investor.

When investors opt to withdraw money from their investment portfolio, they must request the distributor to transfer the desired amount of money to their bank account. The distributor will then debit equal amounts from each scheme in which they have invested and credit it into the investor's bank account.

SWP, in Mutual Funds in India, is a scheme that allows investors to invest in Mutual Funds through weekly, fortnightly or monthly Systematic Withdrawal Plans. It is also called a Systematic Investment Plan (SIP) and can be used for various mutual funds schemes offered by AMCs under the SEBI guidelines.

The SWP scheme is helpful for those who do not have time to manage their investments and would like to invest systematically over some time. The investor can choose the duration of investment and the amount to be invested within a stipulated time frame, such as every week, fortnight or month. The money is debited from their bank accounts on a pre-determined date such as weekly, fortnightly or monthly and is invested in the mutual fund scheme of their choice.

Define your goals with a systematic withdrawal plan

SWP enables investors to make small investments regularly rather than making one significant lump sum investment at one go. It also helps them avoid the problem of deciding which scheme (s) to invest in and prevents them from investing when the markets are weak, and prices fall. Investors can set up an SWP facility with any AMCs / Mutual Fund agents/banks which offer this facility.

SWP in Mutual Fund in India is a facility, which allows you to withdraw money from your mutual fund units before maturity. It is common in many mutual funds, where investors are allowed to do this, subject to certain conditions.

The most important of all is that there is no exit load charged on such withdrawals. When you invest in a mutual fund scheme, the investment period is specified as the maturity period. If you decide to exit your investment before this maturity period, you would have to pay an exit load. This fee for withdrawing or redeeming your investments early may be as high as 1% of the value of the units held.

How does SWP work?

SWP allows you to make systematic investments in mutual funds with a fixed investment amount per investment cycle (monthly, quarterly or half-yearly) and provides the flexibility of investing even in the case of small ticket sizes. With this plan, the investor will contribute the fixed amount every month/quarter/half-yearly to accumulate more units in his portfolio over time.

SWP allows you to spread your investment over time and is beneficial for investors who would like to buy units in different mutual fund schemes at regular intervals, either monthly or quarterly or half-yearly or annually. SWP is available in most Mutual Fund houses, and we will discuss this plan in detail below:

SWP in Mutual Fund in India- Systematic Withdrawal Plan

Any investor holding equity mutual fund schemes of AMCs can avail of the benefit of the SWP facility. SWP, or Systematic Withdrawal plan, allows the investors to withdraw money from their equity mutual fund investments on a systematic/ planned basis. However, this facility is not available for debt mutual funds.

SWP facility is available for both ULIPs and Equity Mutual Funds. Though this facility is available for Equity Mutual Fund investments, the withdrawal amount will be calculated based on NAV and not Rs.10/- per unit.

SWP facility will be available only if the minimum amount required to invest in equity mutual funds is Rs.50000/- and above. And also minimum amount required to withdraw under SWP should be Rs.50,000/-

Switching to SWP in Mutual Fund - how does it help you?

Investors can avail of a systematic Withdrawal facility after investing in equity mutual funds schemes by submitting an application to the AMC concerned and surrendering the units by submitting it to AMC. The application form should be filled so that once an investor requests for withdrawal, he has to provide information about how much he wants to withdraw and how often he wants to withdraw it.

If you have invested in mutual fund schemes like ICICI Prudential, HDFC, Tata and Reliance and wish to withdraw your initial investment and accumulated dividends, SWP (Systematic Withdrawal Plan) can help you do that.

Mutual funds have launched SWP in Mutual Fund in India for investors who wish to withdraw their investments without incurring extra charges or taxes.

The main benefit of SWP in Mutual Fund in India over other modes of selling the investments such as LTCG (Long term capital gains) tax is that it allows you to make partial withdrawals from the asset at regular intervals instead of making one significant withdrawal when you want to sell your mutual fund units.

Wrapping Up

SWP adds liquidity to your investment portfolio. Though there is a lock-in period of one year with SWP, you can easily withdraw part or all of your money without facing any tax implications or reinvesting the amount back into the scheme at the current NAV of the fund.

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