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Best SWP Mutual Funds in 2022 in India

This article attempts to dive deep into the best SWP Mutual Funds in India 2022. It also talks about who should opt for it, taxation, returns and more.

Every individual is unique, and so are their investment needs. Some prefer lump sum, while others SIPs (systematic investment plans). Some investors rely more on capital growth while others expect a regular income. When it comes to income generation, many tools are available to meet investors' expectations, and one such is SWP.

SWP or Systematic Withdrawal plan, as the name suggests, allows the investors to withdraw a fixed or variable amount from their mutual fund scheme, helping them to create a regular flow of incomes. It offers sufficient liquidity to investors that allows them access to money as per their needs and to meet their financial goals.

Best SWP Mutual Funds in 2022 in India

The following table exhibits some of the well-known SWP mutual funds in India and their respective returns:

Scheme Name
Direct plan - Growth option
AUM(Rs. crores)1 year(Absolute return)3 years(CAGR)5 years(CAGR)
Axis Bluechip Fund35,702.211.59%12.75%14.38%
Canara Robeco Bluechip Equity Fund6,647.286.15%16.71%14.63%
Mirae Asset Large Cap Fund31,929.348.41%13.67%12.99%
Motilal Oswal Focused 25 Fund1,694.85-12.38%10.49%
Quant Liquid Plan520.114.05%5.14%5.98%
Edelweiss Liquid Fund1,300.623.55%4.34%5.51%

Who should invest in SWP?

SWP plans cater to investors with varying levels of financial goals and needs. Investing in SWPs is ideal for you, 

  • If you want a consistent additional income source: SWPs can be an excellent source for investors to generate a steady secondary income from their long-term investments. Investing in mutual funds for the long term while regularly withdrawing specific amounts is one of the best options for the investor to get additional income.
  • If you are looking for capital protection: Conservative investors can invest in low to moderate risk mutual funds and generate capital gains through SWP. Suppose you make an initial investment in a particular fund and receive consistent capital appreciation through SWP, but the initial investment will be more or less the same.
  • If you want to ensure your pension: By investing in mutual funds and selecting the SWP option, investors can generate consistent income while working or after retirement. Many people invest their retirement amount in schemes in line with their risk profile and choose SWP to create their own post-retirement income and receive it at a predetermined frequency.
  • If you fall under a high tax bracket: SWPs are especially useful for investors with high tax brackets as there is taxation on the capital gains. The tax on equity and related funds is also moderate because of indexation benefits on long-term capital gains.

Taxation on Systematic Withdrawal Plans

The capital gains through SWP are subject to taxation. In the case of debt funds, wherein the holding period is less than 36 months, the capital gains from the funds will be considered short-term gains and get added to the overall income of investors and taxed according to their income tax slab rate. If the holding period is longer than 36 months, the returns will be considered long-term capital gains and taxed at 20% after indexation.

In the case of equity funds and short-term gain where the holding period is less than one year, the taxation rate is 15%. If the holding period is more than one year, the return will be considered long-term capital gains and 10% without indexation.

The risk involved in Systematic Withdrawal Plans

SWP is not a high-risk investment, but since it's one of the modes of mutual funds, there are a few that investors must consider before opting for SWP.

  • High Withdrawal Rate Risk: SWP allows the investors to withdraw the amount from the mutual fund every month on a pre-decided date. So if your withdrawal rate is higher, there is a huge risk of losing capital much before the maturity period.
  • Market Volatility Risk: SWPs are more sensitive to market volatility than Bank FDs and Post Office Monthly Income Schemes. Mutual funds get affected by market conditions and carry higher risks. Hence investors should choose equity or debt-related funds based on their risk profile to mitigate the losses effectively.

Return potential of SWP

The SWP works on the rupee cost averaging principle. SWP automatically redeems certain units of mutual funds of investors to their pre-decided amounts. The process gets followed irrespective of market conditions, so you don't have to time the markets to withdraw amounts. In the case of SWP, if the market is not doing well, the lesser units will get redeemed compared to low market situations. It not only prevents you from making impulsive financial decisions but averages your returns.

Advantages of SWP

Here are some of the benefits offered by SWP for investors. 

  • Offers Flexibility: In SWP plans, investors can freely choose the amount, frequency, and date to withdraw the amount as per their needs. Besides, it allows the investors to stop their SWP anytime, increase the withdrawal amount or add further investments in mutual funds.
  • Ensures Regular Income: SWP facilitates a regular income for investors. It's highly convenient and beneficial for individuals seeking additional income to meet their everyday needs, especially retirees.
  • The benefit of rupee cost averaging: SWP automatically redeems certain units of mutual funds of investors to their pre-decided amounts. The process gets followed irrespective of market conditions, so you don't have to time the markets to withdraw amounts. In the case of SWP, if the market is not doing well, the lesser units will get redeemed compared to low market situations. If the withdrawal rate is less than the return, investors receive benefits of capital appreciation too. 
  • Tax benefits: The withdrawal on SWP is a combination of capital and income. Since the tax is applicable on the income part and not the capital part, SWPs accumulate better gains than their counterparts. SWP enjoys tax exemption for up to 1 all on long-term capital gains. On gains of above 1 lakh from equity funds, a tax of 15% is applicable. In the case of debt funds, if the units are redeemed before three years, the gains will be taxed as per the income tax slab rate. For redemption of units after three years, the capital gains are taxed at a rate of 20% after indexation, which is profitable for investors.

Why should you choose SWP for mutual funds? 

SWP offers investors an opportunity to tailor their cash flow as per their needs. While staying invested in a mutual fund scheme and withdrawing just the investment capital gains or a certain sum, investors can ensure they have sufficient cash in hand in need. SWP also prevents investors from making impulse decisions of redeeming all of their units in case of market fluctuations. SWP consistently performs regardless of market levels and allows investors to redeem specific units at predetermined periods, such as monthly or quarterly depending on their needs. This way, inventors can carry out their financial plans and meet their goals on time while generating a consistent cash flow.

Conclusion

Investing in mutual funds through an SWP or systematic withdrawal plan is a good strategy to have a regular income. You can also set up withdrawal of only the capital appreciation part. Besides this, the returns are tax-efficient, and there is no TDS on gains like other traditional investment options. However, your investment in an SWP mutual fund should be well planned and aligned with your goals. Failing to do so can impact your finances. 

To read more on similar topics, click here:

Bluechip Mutual Funds

ESG Fund

Large and Small Cap Fund

SWP Calculator

FAQs 

Have any queries related to SWP mutual funds? Check out this FAQ section.

  1. Is SWP good for post-retirement income generation?
    • Ans: Yes, retired people, senior citizens, and even individuals looking for a fixed source of income can choose the SWP option and get a fixed monthly amount to meet their day-to-day expenses. 
  2. How to select the best SWP for yourself?
    • Ans: You can select the best SWP Funds from the scheme category you want to invest in. Once done, you can invest a lump sum amount and start SWP by selecting the withdrawal amount and frequency of SWP. You can also use SWP calculators to determine the final value of the mutual fund after tenure. 
  3. Is SWP better than investing in FD?
    • Ans: Yes. SWP in debt mutual funds is more tax-efficient than bank fixed deposits.
  4. Is the redeemed amount through SWP made instantly available to the investors?
    • Ans: Yes, but the transaction process of SWP takes some time just like other mutual fund redemption.

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