SWP
A Systematic Withdrawal Plan redeems a fixed amount from a scheme at regular intervals.
SWPs are used to draw a monthly cash flow from a corpus. Each withdrawal is a partial redemption, so capital gains tax applies only to the gain portion of the units sold.
Why SWP matters when comparing products
Systematic Withdrawal Plans (SWPs) are a mechanism for investors in India to receive regular income from their investment corpus, particularly useful during retirement or for consistent cash flow needs. Understanding SWPs is crucial when comparing investment avenues like mutual funds, as they offer a tax-efficient way to liquidate investments compared to lump-sum withdrawals, impacting net returns. This feature allows for planned income generation while potentially letting the remaining corpus grow.
Illustrative example
An investor deposits ₹10,00,000 into a mutual fund and sets up an SWP of ₹10,000 monthly. If the fund units are purchased at ₹100 each and later sold at ₹110 for a withdrawal, the ₹10 profit per unit is subject to capital gains tax. This ensures only the gain portion of each withdrawal is taxed, rather than the entire withdrawal amount.