SWP in Mutual Funds: Find the Best Plans for Regular Cash Flow

Systematic Withdrawal Plan in mutual funds is one popular investment strategy that allows investors to withdraw a fixed amount at regular intervals, thereby rendering a steady income. It is of much help for the retired individuals or such people who are at cash flow periods at specific intervals without selling their entire investment. We will be discussing here what is SWP in mutual funds is, its advantages, how to pick up the best SWP mutual fund, and which of the top swp funds is out there in India. Be it a new investor or someone who aims to enhance their investment strategy, this article will guide you in making the right decisions.

What is SWP in Mutual Fund?

The SWP or Systematic Withdrawal Plan of Mutual Fund is a plan to receive a regular income from the investments. This means it is perfect for people who want steady funds, be it a retiree or any one who needs cash flow at a specific interval. You can choose the frequency and amount to withdraw at Mutual Fund. One can choose a duration for withdrawal – either monthly, quarterly, or annual- and along with this, the amount to withdraw can also be chosen. This plan helps your money grow even as you continue pocketing the income without having to sell all your investments.

Now, how do you get it? So, whenever you withdraw, a certain number of units in that mutual fund are redeemed. Such redemption depends on the Net Asset Value. The Net Asset Value here is the price per unit of that fund at which you are actually withdrawing. Suppose you have invested ₹ 10,00,000 in a mutual fund whose NAV is ₹ 100 per unit, and you get 10,000 units. If you intend to create an SWP wherein ₹ 5,000 per month will be withdrawn, then the units that will get redeemed will be different at every level as the NAV will vary at the time of withdrawal.

Importance of SWP in Mutual Funds

Investing in SWP in mutual fund has various significance:

• Sincere Regular Income: SWPs generate a steady income, thus making them ideal for the retired or those requiring funds to bridge their expenses.
• Choice of Amount/Frequency: can choose the amount and frequency of withdrawals based on your requirement.
• Markets Do Not Influence: Since you withdraw fixed amounts at regular intervals, you do not have to bother about market conditions every time.
• Capital Growth: The remaining part of the investment keeps growing even as you withdraw your funds.
• Tax Efficiency: Swaps from mutual funds are tax efficient as they have a lower rate of tax compared with the fixed deposit or even the saving account.

Best and Top Performing SWP Mutual Funds in India

When one selects the top performing SWP mutual funds that is taken into consideration for the year 2024, then he is supposed to rely on the soundtrack record and consistency. Best performing SWP mutual funds are as follows:

1. ICICI Prudential Equity & Debt Fund

• Category: Hybrid Fund
• AUM: ₹39,090.93 crores
• 3-Year CAGR: 22.63%
• Expense Ratio: 0.99%

This fund includes equities for growth and debt for stability; it is one of the good SWP mutual funds.

2. Quant Absolute Fund

• Type: Equity fund
• AUM: ₹2,295.21 crores
• 3-Year CAGR: 19.95%
• Expense Ratio: 0.70%

The fund believes in capital appreciation. Thus, the return of this fund is always trustworthy for investors, which makes it the top pick in best SWP mutual funds.

3. UTI Aggressive Hybrid Fund

• Type: Hybrid Fund
• AUM: ₹6,189.11 crores
• 3-Year CAGR: 18.91%
• Expense Ratio: 1.26%

This fund seeks higher growth on equity investments but shall have debt instruments for risk level, and thereby puts it in the list of top SWP funds.

4. Nippon India Equity Hybrid Fund

• Type: Hybrid Fund
• AUM: ₹3,893.74 crores
• 3-Year CAGR: 18.12%
• Expense Ratio: 1.15%

Famed for their diversified portfolio, this fund provides a well-balanced approach and is suitable for top and best performing SWP mutual funds in India.

5. Franklin India Equity Hybrid Fund

• Type: Hybrid Fund
• AUM: ₹2,029.67 crores
• 3-Year CAGR: 16.29%
• Expense Ratio: 1.03%

This fund has been rendering equity and debt for delivering balanced returns with both income and growth. Hence, it is ranked at a good position among all top performing SWP mutual fund.

How to Choose the Best SWP Mutual Funds?

Choosing the best SWP mutual funds for your portfolio requires a few considerations:

• Performance History: Stick to those funds that have a good track record in performance history for 1-year, 3-year, and extended term.
• Expense Ratio: Lower expense ratios translate into fewer charges being deducted from your returns. Hence, it must be seen to maximise the gains.
• Fund Manager Expertise: Experience and a good background of the management team can do wonders for the returns. Be sure of the alignment of the fund goals with your financial goals and risk tolerance.

Tax Consequences of SWP in Mutual Fund

Taxes also play a big role in the profit that you finally make from your SWP in mutual fund:

• Short-Term Capital Gains: Withdrawals from equity mutual funds within one year will attract a 15% tax.
• Long-term Capital Gains: Even though all the withdrawals that exceed one year will attract tax without indexation for gains exceeding ₹1 lakh, this still comes to 10% tax. It would then depend on your planning at the time of withdrawal under SWP for maximum tax efficiency.

Also read: Complete Guide on Capital Gains Tax on Shares and Mutual Funds

Advantages and Disadvantages of SWP in Mutual Funds

Advantages:

1. Regular and Predictable Income: SWP ensures a regular and predictable income.
2. Active Investment: Some portion of your investment is withdrawn, but the rest of the sums compound with it.
3. Controllable Flexibility: You can choose the amount as well as the period for which you want to invest in Mutual Funds so that this can be adjusted according to your needs.
4. Tax Efficient: Capital gains taxes are lower on mutual funds in many ways than on other investments.

Drawbacks:

1. Capital Erosion: Given the market conditions are not favourable, repeated withdrawal reduces the principal amount.
2. Vested in the Performance of the Market: Low market performance will yield fewer units in your investment.
3. Management Fees: Though less in some funds, the management fees eat into the returns in the long run.

Best Types of Funds for SWP in Mutual Fund

Here are a few different types of funds that would be suitable for SWP in a mutual fund, depending on the financial goals. Some of the popular ones include the following:

1. Equity Funds: These funds invest majorly in stocks with the aim of getting long-term returns. It is riskier but gives huge growth, so it is perfect for those willing to tolerate fluctuations in the market.
2. Debt Funds: These invest in bonds and government securities. These debt funds offer a lower return compared to equity funds, however they are stable and suitable for cautious investors.
3. Hybrid Funds: Also called balanced funds, they invest in both the equity as well as debt. This balance provides growth potential with a level of stability, hence among the top performing and best SWP mutual funds in India.

Also read: Understanding the Different Types of Mutual Funds in India

Investment in a SWP in Mutual Funds

Step 1: Invest in a Fund

Selection of Mutual Fund: It will depend on the investment goals you may have. Perhaps you will want a debt fund that is stable or an equity fund that is growth-oriented.

Step 2: Amount to be Withdrawn and Period of Withdrawal

Amount to withdraw and withdrawal frequency based on the need. More investors, however, like the frequency mode monthly or quarterly.

Step 3. Implement the Plan:

You can enrol in the SWP either through an online website of a mutual fund provider or through your bank web-site and enter all the details including bank account numbers.

Step 4: Monitoring and Reviewing

Keep track of your investment. Markets change, and it would be sensible to elevate or lower your withdrawal amount if necessary.

Conclusion

SWP in mutual funds is a great, effective way of getting regular income without full liquidation of your investment. This is useful for a retiree who looks for stability and for someone who needs periodic cash flows. Among the top-performing SWP mutual funds, flexibility and tax benefits are offered with steady returns.

For all those planning to invest in an SWP or seeking professional advice to know about what is swp in mutual fund, SMC Global Securities provides detailed services designed particularly according to individual needs. They can guide you through the best SWP options, even when trying to gain growth or ensure steady income from your investment.

FAQs on SWP in Mutual Fund

1. What is Systematic Withdrawal Plan (SWP)?

SWP stands for Systematic Withdrawal Plan. This is a type of financial product under which you can withdraw a fixed amount at your choice of regular intervals from your mutual fund investment. This is basically perfect for earning a regular income stream.

2. How does a SWP work?

If you would like to opt for an SWP, a certain number of units from your mutual fund will be automatically redeemed on the date you specified. The proceeds are credited to your linked bank account.

3. What are the benefits of a SWP?

• Income: Generates a regular flow of cash.
• Tax Efficiency: Tax efficiency can be relative to other investment options.
• Flexibility: You can vary the amount withdrawn and the frequency.
• Growth Potential: The balance of your investment continues to grow

4. How do I select the appropriate SWP fund?

First, there are other factors as well, like track history of the fund, expense ratio, experience of the fund manager, and then your risk appetite. You may shortlist the funds with a good past track history and with an appropriate investment strategy in place.

5. What are the tax implications of a SWP?

The tax implications vary according to the type of mutual fund and holding period. In case the withdrawal is done within one year, short-term capital gains tax applies. Long-term capital gains tax applies for every withdrawal that takes place after a year has passed.

Author: All Content is verified by SMC Global Securities.

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