Best SWP: When investing in mutual funds, a Systematic Withdrawal Plan (SWP) is a great choice for those who want a regular monthly payout. It is particularly advantageous for retirees and individuals who wish to generate passive income without utilizing traditional interest-based savings schemes or fixed deposits.
In this blog, we will explore the best SWP options in India, how to choose the right one, and how to calculate your returns using the ClearTax SWP Calculator.
| 1 | 120000 | 10000 | 641.6666667 | 110641.6667 |
| 2 | 110641.6667 | 10000 | 587.0763889 | 101228.7431 |
| 3 | 101228.7431 | 10000 | 532.1676678 | 91760.91072 |
| 4 | 91760.91072 | 10000 | 476.9386459 | 82237.84937 |
| 5 | 82237.84937 | 10000 | 421.3874547 | 72659.23682 |
| 6 | 72659.23682 | 10000 | 365.5122148 | 63024.74904 |
| 7 | 63024.74904 | 10000 | 309.3110361 | 53334.06007 |
| 8 | 53334.06007 | 10000 | 252.7820171 | 43586.84209 |
| 9 | 43586.84209 | 10000 | 195.9232455 | 33782.76534 |
| 10 | 33782.76534 | 10000 | 138.7327978 | 23921.49814 |
| 11 | 23921.49814 | 10000 | 81.20873912 | 14002.70687 |
| 12 | 14002.70687 | 10000 | 23.34912343 | 4026.055998 |
You have a future value of Rs 4,026 as shown in the table.
What is an SWP and How Does It Work?
In a Systematic Withdrawal Plan (SWP), participants in a mutual fund may take out a certain amount from their investment at predetermined intervals (e.g., monthly, quarterly, etc.). Take your 8,000 mutual fund units as an example.
As part of your Systematic Withdrawal Plan, you have instructed the mutual fund firm from which you want to withdraw Rs 5,000 monthly. The scheme’s NAV was Rs 10 on January 1, 2020. You would get 500 units of the mutual fund, which is the same as Rs 5,000 after deducting 10%.
You will get Rs 5,000 from the mutual fund institution when they redeem 500 units. Within the mutual fund plan, you own 7,500 units remaining. As of today, February 1, 2020, the mutual fund scheme’s NAV is Rs 15.
Rs 5,000 divided by Rs 15 equals 333 units in the mutual fund program. During the month of February, the mutual fund institution will redeem 333 units and provide you with Rs 5,000. The remaining quantity is 7167 units, or 7500 units minus 333 units.
Benefits of SWP:
- Consistent Income: Assures a Consistent Monthly Distribution for Financial Stability.
- Saves Money on Taxes: Withdrawals from SWPs are subject to taxation only on their capital gains, which is a significant advantage over fixed deposits.
- Rupee Cost Averaging: The impact of market volatility is mitigated by the systematic withdrawal of units.
- Better Returns: Compared to more conventional savings plans, SWPs invested in balanced or hybrid funds may provide better returns.
Best SWP Mutual Funds for Monthly Income
Based on performance, stability, and consistency in returns, these are some of the top mutual funds for self-directed IRAs:
Fund Type: Mirae Asset Hybrid Equity
What Makes a Difference? Stability and growth are achieved by a balance between equity and debt.
Kotak Equity Hybrid Fund
Class: Mixed Equity
What Makes a Difference? It has a modest level of risk and a consistent stream of income since it invests in bonds and equities.
HDFC Balanced Advantage Fund
Classification: Balanced Maximum
What Makes a Difference? Is perfect for reliable SWP income since it employs a dynamic asset allocation method.
ICICI Prudential Equity & Debt Fund
Class: Mixed Equity
What Makes a Difference? An appropriate portfolio for risk-averse investors, consisting of both growing stocks and stable bonds.
SBI Equity Hybrid Fund
Class: Mixed Equity
What Makes a Difference? A professionally run fund that offers a solid mix of equities gains and fixed-income stability.
How to Calculate Your SWP Returns?
To estimate your SWP income, you can use the ClearTax SWP Calculator.
Steps to Use the SWP Calculator:
Enter your initial investment amount (e.g., ₹10 lakhs).
Set your monthly withdrawal amount (e.g., ₹10,000 per month).
Enter the expected return rate (e.g., 10% annually).
Select the investment tenure (e.g., 10 years).
Get instant results on how long your corpus will last and the estimated returns.
Conclusion:
An effective method of creating passive income while maintaining investment money is a Systematic Withdrawal Plan (SWP). Additionally, it provides tax efficiency, flexibility, and a consistent cash flow when contrasted with conventional savings options such as fixed deposits.
Selecting an appropriate SWP mutual fund may aid in the long-term attainment of financial stability, whether one is saving for retirement or seeking financial independence.
Desire to determine your SWP returns every month? Click here to use the ClearTax SWP Calculator now!