New Delhi: Investment in mutual funds through Systematic Investment Plan (SIP) has reached a record high. It is considered the best way to get magical returns in the long term. Especially, after retirement you get a large lump sum amount, which makes your future life much easier.

SIP is a method of systematic investment, but is there any such withdrawal tool in mutual funds? The answer is yes. You can withdraw money regularly from mutual funds through Systematic Withdrawal Plan (SWP).

What is Systematic Withdrawal Plan (SWP)?

In SIP, you invest a fixed amount every month. The mutual fund buys units from it and you get returns when it grows. SWP is the exact opposite process. After setting it up, the fund house will redeem the required units from your mutual fund holdings and deposit it in your bank account. This helps you withdraw money from the mutual fund in a regular and planned manner. In this, you can also choose how much money you want to withdraw and how often.

How does Systematic Withdrawal Plan work?

Now suppose you have a mutual fund corpus of Rs 5 lakh. This fund earns an average return of 12 percent every year. This means that your corpus will become Rs 5,60,000 in a year. Now you have to do SWP to withdraw Rs 50,000 annually. So this will be available from your yearly return, which will be Rs 60,000 at the rate of 12 percent. Out of this 60,000, 50,000 will come to your bank account through SWP, while the remaining return of Rs 10,000 will be added to your corpus and it will become Rs 5,10,000.

What is the benefit of SWP?

The best advantage of SWP is that it gives you a regular source of income. It is a great option for those who want regular income from their investments, such as retired people. Also, you do not need to redeem all your investments in SWP at once. Redeeming SIPs at once can be risky in case of poor performance of the stock market, because at that time the value of your investment decreases. But, there is no such problem with SWP.

Are there any disadvantages of SWP?

If we talk about the disadvantages of SWP, then first of all it involves market risk, because returns are not guaranteed. It largely depends on the performance of your fund. If the withdrawal exceeds the return, then there is also a possibility of capital loss. Also, SWP may also include charges like exit load and tax, which can affect your overall return.