Systematic Withdrawal Plan from SBI Mutual Fund – The Ultimate Guide

Are you planning to take a sabbatical from work or want to take retirement? Do you find the need for regular cash flow returns in such times? Whichever your goals are, you obviously require immediate cash in your own hands. But you have parked away your entire funds in an existing mutual fund for a particular purpose, what to do now? You cannot withdraw it right now until it’s maturity but you need it badly as your immediate need is knocking your doors. Well, in that case, go for Systematic Withdrawal Plans. If you are existing SBI Mutual Fund customer and you want to withdraw your money from your existing fund corpus, still you can do that, provided you should first understand what SBI SWP is all about.

SBI Systematic Withdrawal Plan (SWP) is an option given to those investors who wish to withdraw their money parked away in an existing mutual fund at predetermined intervals. The amount to be withdrawn and the frequency is usually fixed by the investor which could range from monthly, quarterly, half yearly, or annually. Systematic Withdrawal plans give flexibility to those who are in need of a regular flow of income or we can say, can withdraw cash from an existing mutual fund when in need. These plans give a certain degree of independence to investors from market instability and help in avoiding the market timing.

Even investors seeking for funding a travel plan during summer vacations of their children can set up their withdrawals in such a manner that the cash is available when most required.

Systematic withdrawal plan from SBI could be an ideal option for you as you require the constant flow of money at pre-determined frequencies chosen by you. It’s upto an investor either to reinvest the redeemed cash in another portfolio or use it as a regular source of income –whichever ways an investor choose to use the SWP money.

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In general, there are two options available to investors when it comes to selling mutual funds-either sell at once or opt for a systematic withdrawal plan. It becomes difficult at times, to sell entire mutual fund holdings for an immediate withdrawal of funds for meeting out an unplanned objective. However, it’s best to go for SWP option for some time thereby retaining the existing corpus of your mutual fund.

Presently, SBI Mutual Fund offers approximately 38 schemes for SWP. Let us understand by taking an SBI Systematic Withdrawal Plan example:

Ms. Supriya Rao has 10,000 units in her SBI Mutual Fund scheme on 1st December 2016. She wishes to withdraw ₹8,000 every month through SBI SWP for meeting out her immediate travel expense to Ooty in upcoming months. The calculation for her withdrawal for five months will be done in the following manner:

DateOpening Balance (Units)Net Asset Value(NAV)Units RedeemedClosing Balance
1st December 20161000020400(8000/20)9600
1st January 2017960018444.44(8000/18)9155.56
1st February 20179155.5622363.63(8000/22)8791.93
1st March 20178791.9327 296.29 (8000/27)8495.64
1st April 20178495.6430266.67(8000/30) 8228.97

In this way, units from SBI mutual fund holdings will be redeemed in a systematic way to offer her a regular source of income.

Features of SBI SWP

Amount to withdraw :

SBI SWP can be started from as low as ₹ 500.

Time Intervals

The frequency available for withdrawing from SBI Mutual Fund is either monthly/quarterly/half-yearly/annual period basis.

Types of Withdrawal

Investors normally have two options to choose from fixed withdrawal wherein a specified amount of money can be withdrawn.

Fixed Withdrawal

Under this, specify the time period of your withdrawal-either monthly/quarterly/half-yearly or annually. You also need to specify the purpose of your withdrawal such as payment for your utility bills or yearly withdrawal for meeting out your expenses such as philanthropy.

Appreciation Withdrawal

Under this, you can apply for withdrawal when your investment has appreciated beyond a specified percentage. It can either be done monthly/quarterly/half-yearly/annually. This way your capital remains intact and allow you to book profits in your existing SBI Mutual Fund.

Inculcates Discipline for Managing Expenditures

SBI SWP instills discipline in you to plan your expenditures carefully as you receive the withdrawal amount in parts, rather than in whole.

Exit loads

 Exit loads varies from scheme to scheme in which you have invested. The exit load of SBI MF falls in the range of 0.25%-2.05%, if applicable and it also depends on your holding period.

Benefits and Tax Treatment of SBI SWP

Rupee Cost Averaging

The longer your SBI SWP is, the more you will benefit from rupee cost averaging. This principle works best when an investor has invested a fixed amount of money at regular intervals. This enures that the buying of more units of your exisiting SBI Mutual Fund takes place when prices are low and less when they are high.

Inflation Protection

In general, you must have seen that many of your fixed income instruments do not offer inflation beating returns. Although your principal may be safe but your income might fall short of fulfilling your needs in future. If you choose SBI SWP in case of equity mutual funds, definitely your SWP will score in terms of generating sufficient returns in order to cope up with inflationary levels.

Tax Advantage

The tax treatment of SBI SWP will remain the same as in the case of seeking full withdrawal of equity and debt funds. However, for the units where the holding period do not exceed 12 months for equity funds, short-term capital gains tax will apply. The short-term capital gains tax is also applicable on debt funds if units are held for less than 36 months and long-term capital gains tax if units are held for longer duration.

Steady Income

SBI SWP prove to be a best option for those investors who are looking for a regular flow of income. However, it is an ideal option for senior citizens  as well who need regular cash flows in order to sustain their living. 

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