Where SIP allows you to invest regularly a fixed sum in a mutual fund scheme; SWP, on the other hand, helps you to withdraw from your investments. In other words, SWP is the opposite of SIP, the only similarity being that both are done in small chunks of money (depending on Fund Houses) and at periodic intervals like monthly, quarterly etc.
What is SWP?
SWP is a facility provided by mutual fund houses under which you can periodically withdraw a specified amount from your existing portfolio to meet your expenses. It can be availed as per your need of regular cash inflow by filling up the relevant form that specifies your folio number, date of first withdrawal, frequency of withdrawal and amount with bank details.
What are the scenarios where you may need SWP?
Income after retirement: One of the common uses of SWP, is when you access your retirement fund to generate regular income for yourself.
Complementing/in place of current income source- Consider a scenario wherein you have quit your regular source of income, and are, perhaps, trying to establish yourself as an entrepreneur, or due to layoffs, you lose your job. In both cases, you will need regular income to sustain the lifestyle for yourself and your family.
Achieve your financial goals- An SWP can help you achieve your financial goals. For example, if your goal is to generate a fixed monthly income, an SWP can help to achieve that for you.
Family emergency- Life is unpredictable, and no matter how tightly you plan your finances, there may always be room for surprises you did not plan for. If such a situation warrants additional money, SWP can be a comfortable option.
Similarly, there can be many scenarios that are subjective, and that may require you initiating an SWP.
Disclaimer: Mutual fund investments are subject to market risks. Read all scheme related documents carefully.