How to enable periodic redemption from your mutual fund scheme

A systematic withdrawal plan (SWP) enables periodic redemption from a mutual fund scheme according to a schedule pre-specified by an investor at the prevailing NAV. Investors can choose their withdrawal frequency and amount. An SWP helps to spread the transactions over time and average out the prices without running the risk of transacting at one point as it may turn out to be unfavourable.

Application form

An SWP enrolment form has to be filled and signed by all the applicants. The details, including names of account holders and name of the scheme (plan and option), should be mentioned in the form.

Starting date

The investors must specify the date of commencement of the SWP. A mutual fund may ask for the application to be made a specific number of days before the actual start of the withdrawal plan.

Options

An SWP usually offers two options— fixed withdrawal, where investors specify a fixed amount to be withdrawn from their investment, and appreciation withdrawal, where investors can withdraw to the extent of capital appreciation.

Account statement

The first account statement is sent to the investor within 10 working days of the date of transaction, confirming the first transaction. For subsequent transactions, the account statement is sent on a quarterly basis.

Points to note

The capital gains tax is charged on the SWP as applicable on redemption.

On the date of each withdrawal, the SWP proceeds are paid by cheque or directly credited to the registered bank account.

The number of units equivalent to the amount specified by the investor are redeemed on FIFO (first in first out) basis.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL)