SWP refers to a Systematic Withdrawal Plan. It is a good investment vehicle enabling a user to withdraw a specified sum from the mutual fund investments. The best SWP plan provides a regular income, and more importantly, helps manage the risks involved while investing. Here in this article, we will discuss what is best SWP plan, the top 10 SWP funds, and SWP’s key advantages.
SWP Meaning in Mutual Fund
The term SWP in mutual fund basically means Systematic Withdrawal Plan. As its name suggests, it is a scheme from which an investor withdraws a predetermined amount of money at fixed intervals from their investments in the mutual fund.
For example, you may have money withdrawn monthly or quarterly. This policy keeps away the significant one-time withdrawals that are supposed to be risky in terms of fluctuations in the market. The best SWP plan, however, can provide a steady income when the remainder of the investments continue to grow in the market.
How does a Systematic Withdrawal Plan work?
Starting a Systematic Withdrawal Plan is quite straightforward with just three steps:
- Initial Investment: First, the initial investment will be made in a mutual fund by an investor.
- Choose the amount withdrawn and how often: The investor would then decide how much to withdraw and how frequently to, say, every month or quarter.
- Automated redemptions: At regular periods, the mutual fund company redeems the number of units needed and sends the money into the investor’s bank account.
- Balance Investment Growth: There is ongoing earning of the balance in the mutual fund. With this, it earns benefits in the long run if you pick the right and best SWP plan.
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Top 10 SWP Funds
Here is the list of the 10 best SWP mutual fund list (Direct-Growth) you can consider:
| Fund Name | Type of Fund | Fund Size (in ₹ crores) | Expense Ratio | 1-Year Returns | 5-Year Returns |
|---|---|---|---|---|---|
| Motilal Oswal Midcap Fund | Mid Cap Fund | ₹20,055.68 | 0.57% | 58.49% | 32.92% |
| Quant Active Fund | Multi Cap Fund | ₹10,530.63 | 0.58% | 23.31% | 28.60% |
| Nippon India Large Cap Fund | Large Cap Fund | ₹34,105.04 | 0.67% | 29.42% | 20.24% |
| Bank of India Short Term Income Fund | Short Duration Fund | ₹71.7 | 0.45% | 9.77% | 8.88% |
| Nippon India Ultra Short Duration Fund | Ultra Short Duration Fund | ₹7,914.34 | 0.38% | 7.95% | 7.08% |
| HDFC Balanced Advantage Fund | Balanced Advantage Fund | ₹94,865.65 | 0.74% | 25.53% | 20.46% |
| HSBC Equity Savings Fund | Equity Savings Fund | ₹548.49 | 0.61% | 22.43% | 13.92% |
| Kotak Debt Hybrid Fund | Conservative Hybrid Fund | ₹2,999.05 | 0.47% | 16.00% | 12.70% |
| JM Aggressive Hybrid Fund | Aggressive Hybrid Fund | ₹678.92 | 0.57% | 34.69% | 25.32% |
| Motilal Oswal Nifty Midcap 150 Index Fund | Index Fund | ₹1,894 | 0.30% | 30.19% | 27.27% |
*(As on November 19, 2024)
Overview of the Top SWP Funds
To select the best SWP plan, you can consider large-cap funds, flexi-cap funds, and index funds. In hybrid funds, you can choose equity-oriented plans, equity savings funds, and balanced advantage funds. You can avoid sectoral or thematic and small-cap funds as they are prone to high volatility.
Here are the details of the 10 best SWP plan (as on November 19, 2024):
1. Motilal Oswal Midcap Fund
Motilal Oswal Midcap Fund NAV is ₹118.62 and has generated 25.72% annualized returns since inception. This equity fund belongs to the very high-risk category and has invested 97.60% of its total assets in equity instruments.
2. Quant Active Fund
Quant Active Fund NAV is ₹684.81 and has generated 20.65% annualized returns since inception. This equity fund belongs to the very high-risk category and has invested 93.03% of its total assets in equity instruments.
3. Nippon India Large Cap Fund
Next in the best SWP mutual fund list is Nippon India Large Cap Fund. Its NAV is ₹94.10 and has generated 16.88% annualized returns since inception. This equity fund belongs to the very high-risk category and has invested 98.76% of its total assets in equity instruments.
4. Bank of India Short Term Income Fund
Another best SWP plan is the Bank of India Short Term Income Fund. Its NAV is ₹27.64 and has generated 6.87% annualized returns since inception. This debt fund belongs to the moderate risk category and has invested 71.14% of its total assets in debt instruments.
5. Nippon India Ultra Short Duration Fund
Nippon India Ultra Short Duration Fund NAV is ₹4,233.79 and has generated 7.19% annualized returns since inception. This debt fund belongs to the moderate risk category and has invested 96.85% of its total assets in debt instruments.
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6. HDFC Balanced Advantage Fund
HDFC Balanced Advantage Fund NAV is ₹530.52 and has generated 16.17% annualized returns since inception. This hybrid fund belongs to the very high-risk category and has invested 51.72% and 30.13% of its total assets in equity and debt instruments, respectively.
7. HSBC Equity Savings Fund
HSBC Equity Savings Fund NAV is ₹35.81 and this best SWP plan has generated 10.28% annualized returns since inception. This hybrid fund belongs to the moderately high-risk category and has invested 37.28% and 25% of its total assets in equity and debt instruments, respectively.
8. Kotak Debt Hybrid Fund
Kotak Debt Hybrid Fund NAV is ₹64.19 and has generated 11.17% annualized returns since inception. This hybrid fund belongs to the moderately high-risk category and has invested 23.35% and 69.64% of its total assets in equity and debt instruments, respectively.
9. JM Aggressive Hybrid Fund
JM Aggressive Hybrid Fund NAV is ₹137.20 and has generated 15.28% annualized returns since inception. This hybrid fund belongs to the very high-risk category and has invested 72.58% and 19.33% of its total assets in equity and debt instruments, respectively.
10. Motilal Oswal Nifty Midcap 150 Index Fund
Motilal Oswal Nifty Midcap 150 Index Fund NAV is ₹36.50 and has generated 28% annualized returns since inception. Belonging to the very high-risk category, this best SWP plan tracks the Nifty Midcap 150 Index Fund.
Advantages of Best SWP Plan in Mutual Funds
Some of the key benefits associated with a Systematic Withdrawal Plan are as follows:
- Regular Income: There is the benefit of making steady regular income receipts, particularly for retirees or people who need to supplement their retirement income.
- Flexibility: Investors can also choose how much money they want to withdraw and when they have the right to withdraw, giving them immense control over their financial planning.
- Capital Preservation: Because a SWP withdraws only part of the mutual fund investment periodically, the rest continues earning the returns and preserves the investment.
- Risk Management: Staggering a withdrawal policy over time to an extent reduces the impact of market volatility in the near term.
- Rupee Cost Averaging: The investor benefits from rupee cost averaging with withdrawals at different market conditions.
- Better than Dividend Plan: The dividend plan provides no guarantee of regular income and frequency which are in the top SWP funds.
- Tax Efficient: In equity funds, LTCG of more than ₹1.25 lakhs is taxed at 12.5%. STCG is taxed at a flat rate of 20%. In the dividend plan, you have to pay tax according to your income tax slab which can go to 30%. If the dividend earnings are more than ₹5,000, then a TDS of 10% will also be deducted. So, SWP stands better in terms of tax efficiency.
Who Can Use a SWP?
An SWP would be most apt for:
- Retirees: Retired individuals who seek a regular source of income will find a SWP quite beneficial.
- Supplemental Income Seekers: Individuals who need extra income other than the regular one can use the best SWP plan to meet their financial needs.
- Risk-Averse Investors: The people who desire to withdraw their mutual fund investments in a disciplined manner but wish to avoid risk due to volatility in the market would surely love the structure of SWP.
Conclusion
It is a Systematic Withdrawal Plan, which proved to be a pragmatic solution for an investor to withdraw regularly from his mutual fund investment while saving on the rest. The best SWP plan can be chosen based on past returns, expense ratio, and the fund’s portfolio allocation.
But while investing in any mutual fund, it is better to do your research and keep your investment objective in mind. Open Demat account with SMC Global Securities and keep investing in stocks, or mutual funds like a pro.
FAQs
1. Which SWP fund is best?
The best SWP plan are Motilal Oswal Midcap Fund, Nippon India Ultra Short Duration Fund, and HDFC Balanced Advantage Fund.
2. What is the 4% rule for SWP?
The 4% rule for SWP guides that retirees should not withdraw more than 4% from their retirement corpus (in a year) for savings to remain available during the whole retirement period.
3. Is SWP good or bad?
SWP is good for investors who are looking for regular income and want to accumulate wealth over the long term as well.
References:
https://www.smctradeonline.com/invest/mutual-funds
https://www.mutualfundssahihai.com/en/what-systematic-withdrawal-plan-swp
Author: All Content is verified by SMC Global Securities.
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