We have all heard of SIP or Systematic Investment Plan but what is SWP? Let’s know all about SWP today.
SWP is a facility that makes sure you get the money out of your investment whenever you need it. So, go through the video and description and let us know if you have any questions.
Introduction to Systematic Withdrawal Facility
It is a fact that market fluctuations directly impact our mutual fund investments. In other words, the fluctuations could negatively impact the fund’s Net Asset Value (NAV). The fund returns can deteriorate if not withdrawn on time, particularly when a person is getting close to a financial goal.
The ‘Systematic Withdrawal Plan’ (SWP) aims to mitigate market risks. You can time your withdrawals using SWP to suit your financial goals. It will guarantee that the money is available when needed. By opting for an SWP, you can ensure that your financial goals do not suffer from a fund crunch brought on by negative market swings.
A systematic withdrawal plan is a scheduled withdrawal plan most commonly used for retirement savings. This withdrawal plan can be set up for nearly any investment instrument available in the market. Investors can withdraw a lump sum from their mutual fund scheme on a predetermined date monthly, quarterly, semi-annually, or annually, as per their choice and needs. This facility gives investors the ability to tailor their cash flow to their requirements and preferences. The amount to be withdrawn can be fixed or variable.
Mutual fund withdrawal
The process of liquidating one’s investments (mutual funds) is referred to as mutual fund withdrawal. It is also known as the redemption of mutual funds as the investor is redeeming the units available when they are withdrawing or taking away the money invested into the scheme. It is pertinent to note that any investment in an open-ended scheme can be withdrawn at any point in time. However, investments in the Equity Linked Saving Scheme (ELSS) are an exception, as these have a lock-in period of 3 years.
The systematic withdrawal facility is vastly different from normal withdrawal. An SWP allows investors to withdraw a fixed or a variable amount of money on a pre-decided date, which can be monthly, bi-monthly, quarterly, or vary as per the needs and choices of the investor.
How does SWP work?
It is crucial to understand how exactly a systematic withdrawal plan works before investing in one. You should be aware that an SWP also impacts your mutual fund account.
You are initially required to invest a lump sum into a mutual fund scheme from which you will receive a certain amount at pre-decided, regular intervals into your bank account, much like a salary. This facility lets you manage your funds in a disciplined and planned manner. The amount that is left in the mutual fund after these regular deductions is what the investors receive interest on.
SWP is beneficial for a diverse population, including those:
– looking for a regular source of secondary income
– looking for capital protection
– who are in the higher tax bracket
– who wish to create a pension fund
SWPs have attractive features and are popular among a wide investor base looking for the perfect investment scheme.
Selecting the best SWP for monthly income
How does an investor choose the best SWP from among the various plans available in the market?
Planning before investing in an SWP is extremely important. Investing in an SWP cannot be a hasty decision. It requires a certain amount of research, calculation, and proactive planning. All this can be done with the help of instruments such as an SWP Calculator or a standard retirement calculator.
Investment planning tools can help calculate the goal amount to meet withdrawal requirements throughout the course of a predetermined utilisation phase. With careful planning and consideration, you can make a wise and informed decision that best suits your personal requirements.
Calculators can help you figure out how much you will need to save to attain your goal and the monthly amount you will need to withdraw through your systematic withdrawal plan.
Additionally, one may choose to invest through Kuvera, an online financial planning and investing platform.
Kuvera helps you make informed choices by comparing the best Systematic Withdrawal Plans that would suit your requirements. The results are presented in a tabular manner to help you understand and interpret them better, thereby enabling you to make the right decision!
Watch the video above by AdityaBirlaCapital to know all about SWP.
Blog updated on 18th May 2023.
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Watch here: How to invest during a bear market?
Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and Fixed Deposits and start investing today. #MutualFundSahiHai #KuveraSabseSahiHai
