How does SWP work?
Let say if you have a corpus of Rs 10 lakh invested in a mutual fund and wish to withdraw Rs 6,000 every month, here is how it works
|Date||Opening Balance (Units)||NAV||Total Amount||Units Redeemed||Closing Balance|
|01 Apr||Rs. 10,00,00||100||Rs. 10,00,000.00||60.00 (6000/100)||Rs. 9,940.00|
|01 May||Rs. 9,940.00||105||Rs. 10,43,700.00||57.14 (6000/105)||Rs. 9,882.86|
|01 June||Rs. 9,882.86||103||Rs. 10,17,934.58||58.25 (6000/103)||Rs. 9,824.61|
The above data is for illustrations purpose only to explain the concept.
When the market rises, although you have withdrawn Rs 18,000 in 3 months, you still benefit on the balance part of your investment.
The icing on the cake is when the money is invested in an equity-oriented fund, it has the potential to beat inflation and create long-term wealth. Therefore, a SWP is more beneficial than just simply withdrawing money from savings corpus.