A Systematic Withdrawal Plan (SWP) redeems a fixed amount from your mutual fund investment at regular intervals and credits it to your bank account. Many retirees use it to create a monthly cash flow.
How the maths works
Each withdrawal redeems some units. If the scheme's value grows faster than you withdraw, the remaining investment can last longer. If withdrawals exceed growth for a long period, the investment will eventually run out. Try different inputs in our SWP calculator.
Taxation
Each withdrawal is a redemption, so only the gain portion of each payout is subject to capital gains tax, which is often lower than tax on the same amount of interest income. Tax rules change, so check the current position with your tax professional.
Points to consider
- Choose a scheme whose risk level suits money you will need soon.
- Keep a separate emergency reserve.
- Review the withdrawal amount every year.
- Check exit loads on early withdrawals.
Mutual fund investments are subject to market risks, read all scheme related documents carefully. This article is for general information and investor education only and is not investment advice.
