Mutual Fund Monthly Income Plan (SWP) – Withdrawal and Benefits

Mutual Fund Monthly Income Plan

Mutual fund investments have been very popular nowadays because of their return potential and disciplinary investment approach offered by the SIP mode of investment. SIP allows investors to invest a small amount regularly after a specified period which helps to build a desired corpus over the term to meet their financial goals. 

It is very important for an individual to have an alternate monthly income that can help in case of emergency or if in case monthly expenses increase. Also, in the case of senior citizens or retired individuals, they need regular income to meet their daily expenses & other financial needs. Mutual fund investments can help in these cases by offering a regular income stream.

There is an option in mutual funds that can provide regular monthly income which is known as Systematic Withdrawal Plan (SWP).

In this article, we will learn about the systematic withdrawal plan, the benefits of a systematic withdrawal plan, examples of how a systematic withdrawal plan works, and how to decide the amount for a systematic withdrawal plan?

What is a Systematic Withdrawal Plan (SWP)?

A Systematic Withdrawal Plan or SWP plan in mutual fund can help an investor to get regular income by withdrawing their mutual fund investment periodically. An investor can select regular payouts such as monthly, quarterly, half-yearly, and yearly. By withdrawing the investment regularly, it will help an investor to get a regular income.

However, to start the SWP in a mutual fund, you should already have an investment in the mutual fund or you can do a lump sum investment at the start of the SWP.

Let us understand it with an example.

Suppose Mr. X has an investment of Rs.10,00,000 in the ABC mutual fund. He wants to get Rs.10,000 as a payout every quarter. In order to get so Mr. X can follow the below-mentioned steps:

• He can select a quarterly SWP option of Rs.10,000.
• AMC will redeem the units worth Rs.10,000 and will give the amount to Mr. X.
• Mr. X will start receiving Rs.10,000 every quarter and the balance amount will remain invested as before.
• Mr. X will receive a payout for the desired period or till the investment in the fund is Rs.0.

Benefits of Systematic Withdrawal Plan (SWP)

1. Regular Income

Best SWP Plan helps an investor to get a regular income after a specified interval. This regular income can help an investor in getting the secondary option of income or the income after retirement.

2. Withdrawal options

There are many withdrawal frequency options in the SWP like monthly, quarterly, half-yearly, and yearly. An investor can select the option as per their financial needs and requirements.

3. Tax implications

The withdrawal amount can be a combination of capital and profit. The taxable income will be only the profit part and the part of capital withdrawn will be completely tax-free.

How to decide the SWP amount?

An investor can select the SWP amount as per needs & requirements or on the basis of the investment in the mutual funds. But if an investor wants the payouts in a way that they can receive payouts for a long period, then they can follow the mentioned steps:

Suppose Mr. X has an investment of Rs.10,00,000 in the ABC mutual fund. He wants the monthly payouts through SWP and wants to get the payouts for a long period.

First of all, he will need to check how much the fund can give the returns annually. Suppose he concludes that the fund can offer an expected return of 9% annually, which means an expected profit of around Rs.90,000 in a year.

Now, Mr. X can divide the Rs.90,000 into 12 months to get the monthly payout amount i.e. Rs. 7,500.

So, Mr. X can select the Rs.7,500 for the monthly SWP and the payouts will be perpetual along with the invested amount or capital as it is invested in the fund, subject to the condition that the fund gives a return of 9% annually.

And, if the fund generates a return of more than 9%, then Mr. X will also be able to get the capital appreciation on his investment.

Frequently Asked Questions

• How can we get the monthly income from mutual funds?

There is a very good and popular option of mutual funds to get the regular payouts. A Systematic Withdrawal Plan (SWP) can help an investor to get the regular payouts of their investments. SWP gives 6 options of payout to the investor which are weekly, fortnightly, monthly, quarterly, half-yearly, and yearly.

• What is a Systematic Withdrawal Plan?

A Systematic Withdrawal Plan or SWP is a method of withdrawing the investment from the mutual funds in a systematic manner. SWP can be used for the regular payouts after the specified intervals. An investor can select the payout amount and intervals as per their needs and requirements.

• How is the Systematic Withdrawal Plan amount taxed?

Systematic Withdrawal Plan (SWP) gives the regular payouts to the investor. The SWP can be the capital withdrawn or profit withdrawn or a combination of both. But, the capital part is completely tax-free and the profit part will be taxable as per the long-term capital gain tax or the short-term capital gain tax.

• How to select the best mutual fund for the Systematic Withdrawal Plan?

SWP can be started in any mutual fund. Mostly, every mutual fund gives the option to start the SWP. 

Generally, investors have a portfolio of mutual funds and they get confused to start SWP in which mutual fund. To select the best fund out of your portfolio you can WhatsApp us on 7217746244 and talk to our financial experts for free and they can help you select the best fund as per needs and requirements.