🚀One of the best retirement plan in the market - SWP (systematic withdrawal plan)

Systematic Withdrawal Plan(SWP) is a service offered by mutual funds which provides investors with a specific amount of payout at a pre-determined time intervals, like monthly, quarterly, half-yearly or annually. SWP is a scheduled investment withdrawal plan typically used in retirement. However, investors can structure and use SWPs for various payout needs. ✅SWP is the opposite of SIP. It allows investors to withdraw funds from the mutual fund program on a pre-defined day each month/quarter/half-year/year in fixed or variable amounts. Unlike single withdrawals, you can withdraw money from SWP in installment. SWP directs investments from mutual fund plans to savings accounts. You can withdraw regular income from your mutual investments with the advantage of having your money still invested.

⌛How does SWP work?

Suppose you invested 10,000 units in mutual funds and want to withdraw 6,000 rupees monthly via SWP. If the plan's net asset value (NAV) is Rs 10, withdrawing Rs 6,000 would mean that 600 units are sold (Rs 6,000/Rs 10). The remaining units after this withdrawal are 9,400 units (10,000-600).

If the NAV of the system increases to Rs 20 at the beginning of the next month, payment of another Rs 6,000 means selling 300 units (6,000/Rs 20). There will be 9,100 units left in the mutual fund (9,400-300). Therefore, with each withdrawal, the share of the mutual fund decreases. The higher your NAV, the fewer shares you can redeem to meet your cash requirements.

Advantages on SWP:

✅Regular Income - SWP helps in creating a regular flow of money from investments on a periodic basis i.e. on a monthly or quarterly basis.

✅Tax Benefit - Instead of selling all the units at once, spanning the income across multiple intervals can lower the total tax. It is a tax efficient way of receiving regular income.

✅Avoid market fluctuations - It saves an investor from market fluctuations, as regular withdrawal averages out return value.

✅SWP helps you generate a steady flow of income from your mutual fund investment. This can be particularly beneficial for retirees or those seeking to supplement their income.

✅You have the flexibility to choose the withdrawal amount and frequency that aligns with your income needs. You can also customize the duration of the SWP to match your income requirements.

✅In India, unlike dividends from equity funds, investors generally don't pay tax on the amount withdrawn through SWP if the investment has been held for over one year (for equity funds). This is because you're essentially redeeming your invested capital along with any capital gains. However, it's advisable to consult with a tax advisor for the latest tax implications on SWPs.

✅By withdrawing a fixed amount regularly, SWP helps you average out the impact of market volatility on your investment. You withdraw more units when the NAV (Net Asset Value) is high and fewer units when the NAV is low.

✅You can choose to structure your SWP to withdraw only the capital gains or dividends earned on your investment, keeping your principal investment intact. This allows your investment to continue growing over time.

SWP Vs FD Comparison🚀

When should a person start a SWP?

SWP is favorable to those who have gained a decent amount of money through investing and now want to withdraw their money.

SWP is also recommended to the retired or senior citizens as they don’t have many options of regular income available - SWP surely comes to rescue here. Based on the above assumption, you need around 4.6 crores of corpus in MF to start a SWP of Rs 3 Lakhs per month.

💡Retirement is wonderful if you have two essentials — much to live on and much to live for💡