SYSTEMATIC WITHDRAWAL PLAN (SWP)  

• Meaning
> -A Systematic Withdrawal Plan or SWP is a facility extended to investors allowing them to withdraw a fixed amount from a mutual fund scheme regularly. You can choose the amount and frequency of withdrawal. You can also choose to just withdraw the gains on your investment keeping your invested capital intact. At the set date, units from your portfolio are sold and the funds are transferred to your account.



           
• How Does a SWP Work?
  To understand how a systematic withdrawal plan works, let us look at an example.
Let’s say you have a mutual fund with a corpus of Rs 5 lakh, and you want to withdraw a regular amount from it every month to fund your expenses. You set up an SWP to withdraw Rs 20,000 every month. When you set up an SWP, you instruct the fund house to withdraw a fixed amount of money from your fund at regular intervals (usually monthly, quarterly, or annually) and transfer it to your bank account. In this example, your fund house will withdraw Rs 20,000 from your account every month and transfer it to your bank account. The remaining balance in your fund will continue to earn returns based on the performance of the underlying assets. Over time, the balance of your account will decrease as you continue to withdraw money through SWPs.

• Effective uses of an SWP
• Creating a regular source of secondary income – In today’s times, an additional source of income is needed to tide over the rising cost of living. Investing in Mutual Funds and withdrawing via an SWP is a great way to create a regular source of secondary income.

 

• Create your own pension – Regardless of whether you have a pension plan or not, you can create a corpus around 5 years before retirement and invest it in a mutual fund scheme according to your risk tolerance. Once you retire, you can start an SWP and create your own pension.

 

• Protect your capital – If you are high averse to taking any risks with your investment, then you can initially invest in Arbitrage Mutual Fund Schemes. These schemes offer assured returns with near-zero risk. You can opt for the dividend option and invest the dividend in a debt scheme using a SIP. Eventually, you can start an SWP and earn regular income without risking your capital.

Conclusion -Overall, an SWP can be a powerful tool for generating income from your savings, especially if you are retired or are no longer working and hence rely on your savings to support your expenses. You can speak with your financial advisor to assess its suitability in your case. -As you can see, a Systematic Withdrawal Plan is a good tool to have in your toolbox. Whether you are a newbie or an experienced investor, an SWP can be used effectively to achieve your financial goals. Keep this tool in mind while creating your financial plan.