How to accomplish Financial Goals with SIP and SWP

It’s advisable to adopt the twin strategy of Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) to meet financial goals.

The importance of financial planning is often perceived only during an unforeseen event or after retirement when cash flow dries up. A financial plan can help you make sound financial decisions and keep you on track in achieving long-term and short-term financial goals in life. A good financial plan balances your everyday needs against your goals and deals with the present as well as the future; and Mutual Fund investments can certainly bring in that discipline of financial planning and help in building an admirable corpus.

It’s advisable to adopt the twin strategy of Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) to meet financial goals. Systematic investment plan allows you to invest small amounts of money over a period of time to construct a larger corpus and bring discipline to investing; while systematic withdrawal plan gives you the freedom to enjoy the life you have always wanted and meet your financial needs when required. You can withdraw money from your existing mutual fund investments at pre-determined intervals to generate a regular cash flow for meeting your requirements. Accordingly, individuals making retirement planning are often seen opting for Systematic Withdrawal Plan to increase post-retirement income levels.

A Win-Win Situation – SIP & SWP

The twin strategy of SIP and SWP is suitable for people who are looking for a fixed flow of income for meeting their monthly financial requirements. The twin approach can help you to meet various short-term and long-term monetary needs of yours and family members like financing higher education, paying equated monthly installment (EMI) for consumer durables, house renovation, dealing with medical emergencies, meeting unexpected employment situation, post retirement earnings, and others.

Investing in SIP is best advised for accomplishing financial objectives over a period of time, because when an investor attempts to time the market, he usually misses out on the rally or enters the market at the wrong time – either the valuations have peaked or the markets are on the verge of declining. Investing every month ensures that one is invested during the peaks and valleys of the market.

SWP gives you the potential to earn more returns over a period, as you withdraw happiness bit by bit. It allows the investor a certain level of independence from market instability and helps in avoiding market timing. The investor can use the redeemed amount as a source of regular income, through a tax-efficient way while making inflation beating returns.