Systematic withdrawal plan.

Definition: 

SWP refers to Systematic Withdrawal Plan which allows an investor to withdraw a fixed or variable amount from his mutual fund scheme on a pre-set date every month, quarterly, semi -annually or annually as per his needs.

 

Description:

An investor can customize the cash flows as desired; he can either withdraw a fixed amount or just the capital gains on his investments. SWP provides the investor with a regular income and returns on the money that is still invested in the scheme.

 

For Example: 

You have 8,000 units in a MF scheme. You have given instructions to the fund house that you want to withdraw Rs. 5,000 every month through SWP.
On 1 January, the NAV of the scheme is Rs. 10.

Equivalent number of MF units = Rs. 5,000/Rs. 10 = 500

500 units would be redeemed and Rs. 5,000 would be given to you.

Your remaining units = 8,000 – 500 = 7500

Now, on 1 February, the NAV is Rs. 15. Thus, Equivalent number of units = Rs. 5000/Rs. 15 = 333

333 units would be redeemed from your MF holdings, and Rs. 5,000 would be given to you.

Your remaining units = 7500 – 333 = 7167

And so this process continues till the time you want the withdrawals.

 

Source of information: economic times



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