Best SWP for Monthly Income in India 2024

The SWPs are becoming more popular as SIPs recently among investors as they provide regular periodic income by allowing periodic and systematic withdrawals from mutual fund investments. It has gained prominence among investors like retirees and those investors who are looking for regular cash flow without liquidating all of their investments. Thus the SWPs are expected to grow substantially in the investment landscape of India.

So, In this article, we’ll explore What are SWPs? How does SWP work? Which is the best SWP for monthly income in India? What are SWP monthly returns? and many more.

What are SWPs?

SWP or Systematic withdrawal plan is an option offered by mutual fund houses for investors that allows them to regularly withdraw (semi-annually, quarterly, monthly) either fixed from their investments made on the mutual fund scheme. This option helps investors to generate a consistent cash flow periodically according to their preference without taking out the whole invested amount. 

How does SWP Work?

As explained above, the SWP is a Systematic withdrawal plan that allows investors to withdraw their already invested amount regularly as per their preference.

Mutual funds allocate investors with NAV units, which represent the investor's fund through units and the price of each unit fluctuates daily according to the market and the investments made by the fund house.

As and when the investor chooses to withdraw his/her fund systematically through the SWP option, the mutual fund house starts selling his/her NAV units in proportion to the withdrawal amount opted by the investor.

The below example will help you understand SWP in a better way.

Example

Assume that you have accrued 10,000 NAV units in a mutual fund and you chose a SWP of Rs.10,000 per month.

Suppose, In the first month, the price of each NAV unit is Rs.20, then the fund house will have to sell 500 units to pay you Rs.20,000 per month. (Rs20*500 units). Accordingly, you will be left with the remaining 9,500 units.

If the NAV rises to Rs.40 in the second month, then the fund house will only have to sell 250 units to pay you Rs.20,000. This left you with 9,250 units in the mutual fund scheme.

In both cases, you will get a fixed amount of Rs.20,000, but the number of units sold is different.  Thereby averaging your cost of getting regular income and protecting your investment from market fluctuation.

So concluding it, the fund house adjusts the number of units that need to be sold to adjust the fixed amount of SWP chosen by the investor as per the market value.

10 Best SWP for Monthly Income in India

SWP plans are offered by almost all mutual funds, Therefore, investors should assess the return and make an informed decision before parking their funds. So here is the list of the best mutual funds for SWP and they are chosen from each fund type based on their return factor. This table gives a summarised list of their SWP monthly returns for 3 and 5 years.

 Note: the data collected is as of 1st November 2024

Best SWP Plan for Monthly Income in 2024

1. Quant Flexicap Fund (G)

Quant Flexi Cap is an open-ended dynamic equity scheme that invests in large-cap, mid-cap, and small-cap stocks. Incepted on 17 October 2008, it follows the Nifty  500 TRI index. The fund invests mainly in companies like TREPS, Reliance Industry, ITC, and others, focusing on Refineries, ancillaries, and other sectors.

• Fund Size: Rs.7,912 Crore

• Expense Ratio: 1.75%

• Minimum SIP Amount: Rs.1,000

• Minimum Investment: Rs.5,000

2. Quant Mid cap Fund (G)

Quant Mid Cap Fund is an open-ended equity scheme investing mainly in Mid-cap stocks. Incepted on 20th March 2001, it tracks the Nifty Mid-cap 150 TRI index. The fund invests mainly in companies like Reliance Industry, Aurobindo Pharma, and others, it focuses mainly on Refineries, Miscellaneous, and Pharmaceutical sectors.

• Fund Size: Rs.9,501 Crore

• Expense Ratio: 1.73%

• Minimum SIP Amount: Rs.1,000

• Minimum Investment: Rs.5,000

3. ICICI Pru Value Discovery Fund

ICICI Prudential Value Discovery Fund is an equity value fund that has diversified its portfolio across large-cap, Mid-cap, and small-cap equity stocks. It was incepted on 16th Aug 2004  and has major investments in companies such as TREPS, HDFC Bank, Infosys, and others by focusing mainly on Private banks, computer software, and Pharmaceutical Sectors

• Fund Size: Rs.51,198 Crore

• Expense Ratio: 1.53%

• Minimum SIP Amount: Rs.100

• Minimum Investment: Rs.1,000

4. HDFC Focused 30 Fund

HDFC Focused 30 fund is an open-ended equity scheme. As the name suggests, the fund invests in a maximum of 30 stocks in Large-cap, mid-cap, and small-cap stocks. It has a focused approach to investing in a portfolio of up to 30 high-conviction stocks which are expected to outperform the market. Incepted on 17th September 2004, the fund's main investment lies in TREPS, HDFC, ICICI Bank, and other companies by emphasizing the private Banking sector, computer software, pharmaceuticals, and other sectors.

• Fund Size: Rs.15,109 Crore

• Expense Ratio: 1.67%

• Minimum SIP Amount: Rs.100

• Minimum Investment: Rs.100

5. Quant Infrastructure Fund (G)

The Quant Infrastructure Fund is an open-ended thematic equity scheme that invests in infrastructure stocks. By following the benchmark Index of Nifty infrastructure TRI, it has majorly invested in companies such as Reliance Industries, L&T, ITC, and others. Incepted on 20th September 2007, the fund is focused on Cigarettes, Power Generation and Supply, Refineries, and other sectors.

• Fund Size: Rs.3,937 Crore

• Expense Ratio: 1.88%

• Minimum SIP Amount: Rs.1,000

• Minimum Investment: Rs 5,000

6. Quant Small Cap Fund (G)

As the name suggests, Quant small cap fund is an open-ended equity scheme that mainly invests in small-cap stocks to provide the investors returns. The fund tracks Nifty Small Cap 250 TRI Index and parked its funds mainly in companies such as TREPS, Reliance Industries, Jio financials, and others. Incepted on 29th Oct 1996, the fund emphasizes Refineries, Food-processing, Trading, and other sectors.

• Fund Size: Rs.26,645 Crore

• Expense Ratio: 1.59%

• Minimum SIP Amount: Rs.1,000

• Minimum Investment: Rs.5,000

7. Nippon India Large Cap Fund

Nippon India Large-Cap Fund is an open-ended equity scheme that invests in large-cap stocks to generate returns for its investors. This fund follows the benchmark index of BSE 100 TRI and mainly invests its funds in companies such as HDFC Bank, ICICI Bank, Reliance Industries, and other prominent companies.

Incepted on 8th Aug 2007, the fund concentrates on key sectors such as Private banking, Computer software, Power generation and Supply and others.

• Fund Size: Rs.34,432 Crore

• Expense Ratio: 1.57%

• Minimum SIP Amount: Rs.100

• Minimum Investment: Rs.100

8. ICICI Pru Constant Maturity Gilt fund Reg (G)

ICICI Pru Constant Maturity Gilt fund Reg (G) is an open-ended debt scheme investing in government securities having a constant maturity of 10 years. The fund was incepted on September 12th, 2024 and is mainly investing in Government securities.

• Fund Size: Rs.2,452 Crore

• Expense Ratio: 0.39%

• Minimum SIP Amount: Rs.1,000

• Minimum Investment: Rs.5,000

9. Aditya Birla SL Corporate Bond Fund 

Aditya SL Corporate Bond Fund is an open-ended debt scheme that predominantly invests in AA+ and above-rated Corporate bonds and Government securities. Incepted on 3rd March 1997, the fund has its investment majorly in GSEC2023, NABARD, SIDBI, and other institutions or companies. The fund has a main focus on finance and lending institutions, public sector banks, and other sectors.

• Fund Size: Rs.23,109 Crore

• Expense Ratio: 0.52%

• Minimum SIP Amount: Rs.100

• Minimum Investment: Rs.100

10. Sundaram Equity Savings Fund

Sundaram Equity Savings Fund is a hybrid fund that allocates its investment in both Equity and debt instruments in mixed proportion to generate returns for its investors. Further, it has also invested its funds in government-backed securities. The fund is majorly invested in TREPS, GSEC2034, Reliance Industries, and others. Sectorally, the fund is focused on investing in private banks, refineries, computer software, and others.

• Fund Size: Rs.995 Crore

• Expense Ratio: 2.11%

• Minimum SIP Amount: Rs.100

• Minimum Investment: Rs.100

Benefits of Monthly Systematic Withdrawal Plan

• Passive Source of Income - SWP creates a facility that assures investors to withdraw the preferred fixed sum of their income regularly in set intervals. Thus it helps retirees and those who require regular cash flow.

• Flexibility -  One of the main benefits of the SWP is its flexibility. This enables investors to decide on their fixed sum as well as intervals like monthly, quarterly, or yearly.

• Taxation benefits - SWP benefits for those who have a high tax bracket. Further, there is no TDS on the SWP amount for resident individual investors.

Taxation for Monthly Systematic Withdrawal Plan

Capital gains are categorized into Long-term (LTCG) and short-term (STCG) based on the holding period of the funds. These are taxed differently according to the type of funds such as Equity, Debt, and Hybrid. Let's look into each fund and know how they are taxed. 

• Equity Funds

Equity funds are those funds where the fund house invests its capital in equities such as stocks in a higher proportion (minimum 65% investment will be on equities). 

If these funds are held for more than 12 months, these are considered long-term Capital gains and are taxed at 12.5% on the gains. However, those who have sold before the budget date i.e. July 23rd, 2024 were taxed 10% on their Long-term Capital gains

If the fund is held for less than 12 months, it is considered a short-term capital gain and is taxed at the rate of 20%. However, those who have sold before July 23rd, 2024 were taxed 15% on their short-term Capital Gains.

• Debt Funds

When mutual Funds invest a minimum of 65% of their capital in debt instruments such as corporate bonds, debentures, money market instruments, etc, are considered debt funds. Some of the debt funds include Gilt funds, conservative hybrid funds, and Liquid funds  

For investments made before 1st April 2023 and sold before July 23rd, 2024, LTCG (holding period is more than 36 months) is taxed at 20% with the benefit of indexation, and STCG (holding period is more than 36 months) is taxed at the slab rate.

If you sold after July 23rd, 2024, LTCG(held more than 24 months) is taxed at 12.50%, and short-term gains are taxed at your slab rate.

For investments in debt funds made after 1st April 2023, gains are added to your income and are taxed as per your slab rate regardless of the duration of the investment.

• Hybrid Funds

Hybrid funds are those funds, where the fund house invests between 35% to 65% of their total investment in Indian equities. For taxation, in Hybrid funds, the date of acquiring the asset isn't relevant and are taxed based on the date of sale.

If sold before 23rd July 2024, LTCG (Held for over 36 months) is taxed at 20% with indexation benefits and STCG is taxed at the slab rate. If sold after 23rd July 2024, LTCG (Held for over 24 months) is taxed at 12.50% whereas STCG will be taxed at the slab rate.

Who Should Consider Taking SWP?

SWPs are reliable options provided by mutual funds that are especially useful for retirees and those who seek regular cashflows periodically through their investments without liquidating their overall invested funds. Therefore, they can benefit from the positive movement of the market until they withdraw their whole fund.

SWP is also suitable for individuals who have a high tax bracket as there is no TDS on the capital gains. Besides the capital gains from equity or equity-oriented funds are taxed moderately whereas debt-oriented funds are taxed quite moderately since the indexation is allowed on the long-term capital gains.

Conclusion

Wrapping it up, A SWP lets investors receive a regular, monthly income from mutual fund investments through systematic withdrawals. Suitable for retirees or investors with specific financial goals, SWPs allow flexibility regarding withdrawal amounts and frequency. Since SWP withdrawals include both capital and gains, such withdrawals can also present tax advantages if equity investments are of a long-term nature. This approach keeps a steady cash flow but retains investments in the market with possible returns.

However, a margin of market volatility and individual financial goals are taken into account to keep investment balanced over time. The investors are advised to make an informed decision and are further informed to consult a financial advisor to meet their financial goals.

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