What is Systematic Withdrawal Plan?

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Systematic withdrawal plan also known as SWP is a facility that allows an investor to withdraw money from existing mutual fund investments at specified intervals. SWP facility is used to create a regular flow of income from investments. You can do a Fixed SWP where you specify the amount you wish to withdraw or Appreciation SWP where you can withdraw the appreciated amount every month or quarter.

 

How Systematic withdrawal is beneficial in Monthly Income Plans?

 

Now you have understood that to generate regular income (not assured) from MIPs, you can either opt for Dividend payout option, which are irregular and also not certain or you may go with MIP growth option and opt for SWP. In the former case you have to bear with the dividend distribution tax and in latter you withdraw units out of your capital and appreciation (if any). Question is which would be better option.

 

I did some back testing on a Monthly income plan of one popular AMC to figure out the answer.

 

Below are the details.

Investment amount : Rs 975000/-

Date of Investment : 1 Jan 2008

Date of redemption: 1 Jan 2013

Product and Units alloted :

Reliance MIP (Monthly dividend payout): Units allotted 85901.57 (@ NAV – 11.3502)

Reliance MIP Growth : Units allotted 64732.01 (@ NAV – 15.0621)

SWP rate : @ 8% p.a payable monthly

Dividend dates/rates : As per actual

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