SIP vs SWP
Definition
SWP (Systematic Withdrawal Plan) is the reverse of SIP. While SIP systematically invests money into mutual funds, SWP systematically withdraws a fixed amount from mutual funds at regular intervals. SIP is for the accumulation phase; SWP is for the distribution phase — typically during retirement.
In Simple Words
Think of SIP and SWP as two sides of the same coin. During your working years, you use SIP to build wealth. During retirement, you use SWP to generate regular income from your accumulated corpus. SWP allows your remaining corpus to stay invested and continue growing while you withdraw monthly income.
Real-Life Scenario
Ramesh retires at 60 with a ₹2 Crore corpus in a hybrid mutual fund: SWP setup: ₹80,000/month withdrawal Fund return: 9% p.a. Year 1: Withdraws ₹9.6L, corpus grows to ₹2.08 Crore Year 5: Total withdrawn ₹48L, corpus is still ₹1.94 Crore Year 10: Total withdrawn ₹96L, corpus is still ₹1.73 Crore Year 20: Total withdrawn ₹1.92 Crore, corpus is still ₹1.11 Crore Ramesh withdrew almost his entire original investment but still has ₹1.11 Crore left. The remaining corpus continued to earn returns.
Key Points to Remember
Frequently Asked Questions
Test Your Knowledge
1 questions to check your understanding
SWP is most commonly used during which life phase?
Summary Notes
SIP builds wealth; SWP distributes it
SWP is more tax-efficient than full redemption
Keep SWP rate below fund returns for corpus preservation
Plan your SIP years to build adequate corpus for SWP years