Example of Systematic Withdrawal Plan (SWP)
A Systematic Withdrawal Plan (SWP) allows investors to withdraw a fixed amount from their mutual fund investments at regular intervals. Below are real-life examples to help you understand how SWP works and how it can benefit you.
Example 1: Retirement Planning
Scenario: Mr. Kumar, aged 60, has ₹50,00,000 invested in mutual funds. He wants to withdraw ₹20,000 monthly to supplement his retirement income. The expected annual return on his investment is 8%.
- Initial Investment: ₹50,00,000
- Monthly Withdrawal: ₹20,000
- Annual Return: 8%
- Tenure: 20 years
Outcome: Over 20 years, Mr. Kumar will withdraw a total of ₹48,00,000, while his remaining corpus will grow due to compounding interest. At the end of 20 years, he will still have approximately ₹37,00,000 left in his account.
Example 2: Funding Child's Education
Scenario: Mrs. Sharma has ₹20,00,000 invested in mutual funds. She plans to withdraw ₹10,000 monthly for her child's education expenses over the next 10 years. The expected annual return is 9%.
- Initial Investment: ₹20,00,000
- Monthly Withdrawal: ₹10,000
- Annual Return: 9%
- Tenure: 10 years
Outcome: After 10 years, Mrs. Sharma will have withdrawn ₹12,00,000 for her child's education. Her remaining corpus will be approximately ₹15,00,000, thanks to the power of compounding.
Example 3: Emergency Fund Management
Scenario: Mr. Singh has ₹10,00,000 in mutual funds as an emergency fund. He decides to withdraw ₹5,000 monthly to cover unexpected expenses. The expected annual return is 7%.
- Initial Investment: ₹10,00,000
- Monthly Withdrawal: ₹5,000
- Annual Return: 7%
- Tenure: 15 years
Outcome: Over 15 years, Mr. Singh will withdraw ₹9,00,000 while maintaining a balance of approximately ₹8,00,000 in his account. This ensures his emergency fund remains intact.
Why Choose SWP?
These examples demonstrate how SWP can provide a steady income stream while preserving your capital. Whether you're planning for retirement, funding education, or managing emergencies, SWP is a flexible and tax-efficient solution.