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Chapter 3 : Investing Smart

5. Systematic Withdrawal Plan (SWP)

Most investors make an investment plan for their retirement. They spend a lot of time, energy and effort finding investment options that can earn them good returns to ensure a financially secure, post-retirement life. While saving for retirement is their priority, spending the corpus accumulated over years needs some thought too.

A retirement fund needs to be spent and/or invested meticulously since you are depleted of all sources of income and depend on the corpus for all your needs. This is where a SWP steps in. Post receipt of the retirement funds, an SWP helps you invest ensuring that you can withdraw a pre-decided amount every month with minimum damage to your corpus. In essence, Systematic Withdrawal Plan (SWP) is the reverse of Systematic Investment Plan (SIP). SIP allows you to make regular investments whereas SWP allows you to withdraw a pre-defined amount at fixed intervals from the amount you invested in Mutual Funds for growth.

For example: Post retirement, Ram has total savings of ₹20 lakh. He assess his fixed monthly costs and desires ₹20,000 every month to manage them. For simplicity of calculation let’s assume that he invests this corpus in a SWP offering 10% annual returns.

∴Total interest earned in 1 year=(2,000,000*10)/100=200,000
However, Ram withdraws ₹20,000 every month or ₹240,000 every year.
∴Excess amount withdrawn=240,000-200,000=40,000
Balance in the portfolio=2,000,000-40,000= 1,960,000

Please note that, this is a very simple example cited for the purpose of explaining the concept of a SWP and is not an indicator of the market performance of any fund.

Opting for SWP could be a good decision you take today for 3 main reasons

Regular cash flow: To help meet needs at intervals specified by you
No more idle money: Let it grow in Mutual Funds and be made available through an SWP
Minimal effort: Automate withdrawals for a specific time period by filling the form only once

So the next time you need regular cash flow for your child’s college expenses or to meet monthly needs, all you need to do is fill in basic information stating the name of the scheme, the start date and the amount you want to withdraw each time. You can then relax considering the withdrawal process will continue diligently till the date specified by you or till the folio balance exists, whichever is earlier. The SWP facility removes the need for repeated redemption transactions.

Note: Withdrawals from your investments under this facility may be subject to Exit Load as applicable

This article should not be considered as 'investment advice'. We request the reader to make informed investment decisions and consult their financial advisors to determine the financial implications with respect to investing in Mutual Funds.

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Investing Smart

Chapter 3 : Investing Smart

5. Systematic Withdrawal Plan (SWP)

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