What Is A Systematic Withdrawal Plan And How SWP Works?

Let’s understand the working of an SWP in mutual funds with an example:

You have 5,000 units of a mutual fund scheme. After 2 years of staying invested, you have instructed the fund house to start an SWP plan where you want to withdraw ₹4,000 every month.

Now, on the first due date of the SWP, the NAW of the mutual fund is ₹16. So, the number of units to be redeemed for the SWP will be 250 (₹4,000/₹16).

The fund house will see 250 units of the scheme from your portfolio and transfer ₹4,000 into your account. After the first withdrawal, your remaining units in the mutual fund will be 4,750 (5,000-250).

Now, on the second due date of the SWP, the NAV of the mutual fund is ₹20. So, the number of units to be redeemed for the SWP will be 200 (₹4,000/₹16).

The fund house will see 200 units of the scheme from your portfolio and transfer ₹4,000 into your account. After the second withdrawal, your remaining units in the mutual fund will be 4,550 (4,750 -200).

This process will continue periodically till the end of your SWP period.