Mutual Funds and SWP - AxisDirect
AxisDirect-O-Nomics
Sep 07, 2017 | Source: MoneyControl

Systematic Withdrawal Plans
If you are planning monthly income for your retirement in coming years by investing money in some financial product, a Systematic Withdrawal Plan (SWP) of a mutual fund can be one of the best options for you.
A Systematic Withdrawal Plan allows you systematic redemption of your invested money. This plan allows investors to withdraw their accumulated corpus over a period of time instead of evacuating all the money at once. This can provide you a fixed income every month that will come directly to your bank account.
“SWP is most suitable for retired people who can stay invested and take out only the amount that is needed at any point in time. Though SWP can be done from any fund that allows this plan, it is best to keep this money in debt fund and withdraw at a regular period. It can also be used as a second income if combined with growth option of monthly income plan or withdrawING a fixed amount,” said Bhartendra Singh, Head of Product for Investment and Insurance Marketplace, Wishfin.
Benefit of SWP
=> SWP allows the investor to stay invested and save and take out only required amount.
=>SWP can be well planned and could be a very effective way to generate a second income by investing in hybrid schemes like monthly income plan and protects the capital and use the gains of the investment.
=>SWP can be a ‘pseudo pension’ in the form of an annuity for those who will not be getting a pension once they stop working.
=>SWP puts discipline of withdrawing the money.
=>SWP offers tax advantage since money withdrawn in the first year through SWP does not attract short-term capital gain tax.
Don’t confuse with STP
One should not confuse SWP with systematic transfer plan (STP). Singh further added to it that apart from the fact that STP & SWP are both systematic plans, they have a very different purpose. “STP will help investor staggered investment in equity markets and average out the cost of acquiring equity units while SWP will is more like second income and is efficient plan to save & stay invested and take out as much as required,” he added.
Let us understand it through an example
Suppose you invested Rs 15 lakhs at the time of retirement in a balanced mutual fund and then you run an SWP of Rs 15000 per month. Assuming the fund gives a return of 10 per cent per annum, your funds will last you for 211 months (Approximately 17.5 years). If your annual withdrawal is less than the expected annual rate of return, or your fund is giving more returns year on year then the SWP can run perpetual, that is, you can get monthly income forever by doing one-time investment.
The only disadvantage in the SWP is that at various intervals it may eat your capital due to market volatility. But a proper asset mix of investment in several good schemes will ensure that your primary goal of getting second income will be met without letting you run out of money in times of need. Also, one should know that SWP is a very good investment strategy to use for generation of regular income in various scenarios, especially helpful during the post retirement age.
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