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Things To Know Before You Go For A Mutual Fund SWP

Personal Finance

One of the main reasons to invest your money is to get stable monthly returns. Mutual funds are a popular saving scheme, and many people invest in them. Some people like to keep their money for longer periods in mutual funds as they want to create a corpus. The goal could be to create a second source of income while you work or to create a stable source of income after you retire. In any case, having a second source of income can be very useful. If you invest money in mutual funds, you can set up an SWP plan to get a monthly fixed sum for your needs.

Read on to learn more about SWP in mutual fund and how to use it for your benefit.

Mutual Fund SWP

A Systematic Withdrawal Plan (SWP) is a method used by investors to get a certain sum of money every month from their investment. It is the exact opposite of a Systematic Investment Plan (SIP), wherein you invest a fixed sum every month in a mutual fund. With an SWP plan, you can define the money you want every month. This amount will be sent to your bank account every month on a fixed date, and you can use this money for any of your needs. SWP in mutual fund is one of the options to book profit that you are making. While you can set any amount as SWP, it is better to set an amount lower than the returns you are making.

Most experts agree that your SWP should not be more than 10% of your annual investment. For instance, if you invest Rs 18 lakhs every year, you can set your SWP plan to Rs. 15,000 per month or Rs. 1.80 lakhs per year. You can opt for the amount and frequency of your SWP in mutual fund.

Crucial Aspects of SWP in Mutual Fund

You must make an informed choice if you want to set an SWP plan for your mutual fund. Here are some critical aspects of SWP that you must know about:

  • Type of fund: If you want to start SWP in mutual fund, you should choose a suitable mutual fund type. You can opt for debt, equity, or hybrid mutual funds. However, it is better to opt between hybrid or equity funds. These two fund types offer better returns than debt funds. If you want to keep your original money safe and want only to draw from your profits, debt funds will not cut it. They offer lower returns, and if you set your SWP plan at a higher amount than what you are making, you will erode your capital. Hence always opt for a fund that offers high returns to set your SWP.
  • Flexibility: SWP Plan will offer you a lot of freedom to select an amount that meets your needs. With SWP in mutual fund, there is no guarantee that you will get a fixed return on your investment. But you can surely define the amount you want to draw monthly from the mutual fund. This allows you to get a certain amount every month. But if your mutual fund is not making enough money, you can always decide to stop the SWP. This flexibility is helpful in certain situations to match your needs with reality. Make sure you do not withdraw too much, as it can affect your future finances.
  • How much to draw: This is your choice. With your SWP plan, You can take out as much money as you want until the total money you have invested in the fund. But if you start drawing too much, your original investment will reduce. Hence, the chances for your money to grow will also reduce. Thus, you need to know how much you can get every month without affecting your financial goals. Most experts agree that you should not draw more than 10% of your total investment in one year. For instance, if you invest Rs. 2.40 lakhs in a year, you must not draw more than Rs. 24,000 that year.
  • How to apply: Applying for SWP in mutual fund is very easy. You can set this option when you start a new mutual fund scheme. You can also start this option on an existing account. You need to access your mutual fund through internet banking or through your AMC. You will need to fill up an SWP form where you must give all the vital details. You must also list the amount you need to draw and submit the form. The AMC or registrar will process it and you will start getting the money in your account.

Investment in mutual funds is a good option. With SWP in mutual fund, you can create a stable source of income over a period. However, it would help if you learned about an SWP plan before making a decision. Visit the Piramal Finance website for more such informative articles and financial products.