Systematic Withdrawal Plan
   
   
A systematic withdrawal plan (SWP) allows investors to receive a regular income while still maintaining their investments’ growth potential. A SWP includes convenient pay-out options and has several tax advantages.

As long as your investment performs at a rate that exceeds your withdrawal rate, your investment will continue to grow. We can help you draw a tax advantaged income from your assets. Diversifying amongst a few funds always makes sense.
 
Monthly Income Plan Was never so attractive
Wealth is a goal everyone aspires for. The difference between wishing for it and realizing it is in investment planning. And whilst the wisdom of investing prudently is indisputable, it also pays to know just how and when to disinvest.

A systematic withdrawal plan (SWP) is a smart way to plan for your future needs by withdrawing amounts systematically from your existing portfolio either to reinvest in another portfolio or to meet your expenses. This is feasible without putting your investment portfolio to additional risk and yet continue to derive relevant tax advantage. Sounds interesting? Explore it further.
 
How does it happen?
 
Typically you invest in a growth plan of an open ended fund. Thereafter, you opt to withdraw a fixed amount or variable amount at regular intervals. The amount so withdrawn shall be converted into units at the applicable redemption price and such units shall be reduced from the outstanding unit balance.
 
Here’s how a SWP works for you
 
It helps plan your payments as the withdrawal is in line with your commitments – the amount is made available to you just when you need it. Such withdrawal could be monthly, quarterly or half-yearly as specified by you, based on your requirements and commitments.

Your savings no longer remain idle. Your money can earn better returns if reinvested, instead of lying idle in a savings account for meeting your regular payments.

It smoothens out the fluctuations. When you withdraw periodically, you are independent of market movements and thus your average withdrawal value is higher than the average cost price.
This illustration demonstrates how this happens:


Month
Amount
Invested (Rs.)
Amount Withdrawn
Purchase Price (Rs.)
Sale Price
No. of Units Purchased
0
50,000
12.50
4000.000
1
2000
12.60
158.730
2
2000
12.70
157.480
3
2000
12.65
158.103
4
2000
12.80
156.250
5
2000
13.00
153.846
6
2000
12.95
154.440
Total
50,000
12,000
12.78
3061.150
You will see how the average sale price takes care of the market volatility and helps you get a reasonably higher price for your units than what you would have got, had you withdrawn in one stroke.
 
It brings you tax advantages. Since your withdrawals are from capital, and if the gains are long term in nature you pay tax at a lesser rate. Let us analyse this illustration:

Suppose you invest Rs.1,00,000 in a growth plan on say April 1st 2003 and opt for SWP of Rs.5000/- on a monthly basis to commence after 1 year, say from May 1st 2004. The income, post tax would be as follows:
 
Purchase price on April 1st 2003 is Rs.12.00 per unit. Units allotted would be 8333.333:
Date of Withdrawal
NAV
Units Redeemed
Units Balance
Cost of Redeemed Units
Long term Capital Gain
Tax Amount
Net Amount
1st May'04
13.03
383.729
7949.604
4604.75
395.25
39.52
4960.48
1st June'04
13.12
381.097
7568.507
4573.164
426.84
42.68
4957.32
1st July'04
13.21
378.501
7190.006
4542.012
457.99
45.80
4954.20
1st Aug'04
13.29
376.222
6813.784
4514.664
485.34
48.53
4951.47
1st Sep'04
13.37
373.971
6439.813
4487.652
512.35
51.23
4948.77
1st Oct'04
13.46
371.471
6068.342
4457.652
542.35
54.23
4945.77