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Systematic Withdrawal Plans (SWPs)

Wealth creation and growth for the future, is what drives people to invest. Some prefer to participate in direct stock trading because of perceived high returns. Many investors want to get a sense of market movements without bearing too much risk. The latter types of investors choose mutual funds, which help them achieve both objectives.

Varied market cycles and investment horizons have given rise to the need to create innovative and niche investment methods. Simply investing in mutual funds is not enough, many investors look for unique ways to minimise risks and maximise returns.

Mutual-Fund investments are usually considered only as an avenue of putting your money in safe options which create wealth. To that effect smart investors opt for systematic payment plans like Systematic Investment Plans (SIPs) or Systematic Withdrawal Plans (SWPs).

Now, what if we told you, there’s a way in which your mutual fund investment can be a source of regular income? With a SWP in mutual funds, you can not only ensure savings and good returns but also be able to meet your monthly expense needs.

This type of plan allows you to withdraw money from your fund at regular intervals. The withdrawal amounts can be fixed or varied, and the intervals are set within a calendar year (monthly, yearly, semi-annually or yearly).

What you should note here is, the number of mutual-fund units which will be redeemed (to meet your withdrawal needs), will vary. The reason being, during market cycles the NAV of underlying securities will fluctuate. So, let’s say you have 5000 units invested and your preset withdrawal sum is ₹5000. Now your first withdrawal date is 1st April 2019 and the prevailing NAV is ₹15, you will get 333 units. Your next withdrawal date is 1st May 2019, at that time the NAV is ₹20. You will then get 233 units (you must consider; the number of units is 5000-333).

Systematic Withdrawal Plans Recommended by Angel BEE

Systematic Withdrawal Plans are a great way to create wealth and generate a source of income. Whether you’re on a fixed salary or retired, these plans come in handy to meet last-minute expenses. You can choose either debt- or equity-oriented funds and another good thing is, you have the option to withdraw only profits you’ve made from high returns.

Apart from being a good source of income in the short-term, you can leverage these plans to save for the future. Most conservative investors prefer debt-funds over equity, however, these plans work well even with equity-oriented funds. Here are our recommendations:

Top Systematic Withdrawal Plans

Systematic Withdrawal Plans are considered safer than mutual funds which give regular dividend pay-outs. The reason is, dividend payments are not guaranteed, whereas in these plans you can set a regular amount to withdraw. The best plans ensure wealth creation and are a reliable source of fixed income.

SWP in mutual funds are great for individuals who need to supplement their regular income or if they’re retired these would be the only source of income. Moreover, these plans are great way to gradually redeem your investment instead of bearing a one-time redemption fee. The best plans will not only give you great returns, but a substantial profit to enable regular withdrawals:

Everything You Need to Know About Systematic Withdrawal Plans

Systematic Withdrawal Plans are an effective way to generate income from your mutual-fund investment. In principle, some market experts consider these plans as an opposite of systematic investment plans.

The amount of withdrawals and the time-frame interval may vary, depending on the type of plan you choose. You can opt for choosing to withdraw a fixed or variable amount, you can even withdraw just the profits of your investment.

The reason to choose this plan is, to meet your need of regular income. This type of plan is the most suitable for retired individuals or those living off a limited income. Another reason you may consider is, though you have the option to withdraw only the profits of your investment, it continues to give returns in the future, until you redeem the entire portfolio.

The systematic withdrawal is subject to taxation under pertinent laws of the Indian Income Tax Act-1961. Short-term withdrawals are considered income and will be treated per your income-tax bracket. Long-Term withdrawals will be subject to Long-Term Capital Gains Tax (LTCG).

Why Systematic Withdrawal Plans?

  • Continuous Investment and Income: These plans can be a great source of secondary income in case of cash contingencies. Moreover, for retired individuals or those who have a limited income, these become the primary source.

  • Flexible Withdrawals: You can choose to withdraw either fixed or flexible sums to withdraw at regular intervals. Another option is, you can choose to withdraw just the profits gained in your investment.

  • Better Than Dividend-Linked Funds: Dividend-linked funds may give pay-outs, but only when the underlying companies (in the portfolio) declare a dividend. In these plans, the pay-out is regular, irrespective of expected returns.

Get Better Returns with Systematic Withdrawal Plans

SWP in mutual funds are great not only for wealth creation but also accumulation. You can systematically redeem your investment while simultaneously generating returns on investment. Market experts recommend investing in the corpus of a debt-oriented fund to have a steady flow of returns. On the other hand, if you prefer equity-oriented funds, then it is advisable to opt for withdrawals based on capital appreciation. An ideal way to make the most of these plans is to choose well-balanced and diversified portfolios. These will continue to give to good returns in any market cycle.

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