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Systematic Withdrawal Plan
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Hellow and Welcome to this session on SWP.
In our earlier sessions, we have discussed about Systematic Investment Plan and Systematic Transfer Plan (STP).
Today, we shall discuss about SWP.
SWP is the short form of Systematic Withdrawal Plan.
Assume your investment has grown well over the years..
Assume that you retired now and need money every month for sure.
You wish to depend on your investments to get the money on a monthly basis.
SWP is an instruction that you give to your mutal fund directing them to redeem the specified payout amount on specified days and sent the money to your bank account.
You specify the start and end dates and the funds will get redeemed from your scheme automatically.
So with one instruction you can automate the redemption process.
The redemption will happen irrespective of market conditions, but for the fixed amount that you specified.
So, when the markets are going up, only fewer units will get redeemed.
On the other hand, when the markets are going down, more units will get redeemed.
In either case, you only get the switch out amount that you specified in your bank account.
The SWP interval (period) is usually fortnightly, monthly, quarterly or half-yearly.
Some schemes and fund houses allow daily SWP as well.
The selection of the interval should depend on how and when you need the funds in your bank account.
Example: Paying Electricity Bills
Assume my eletricity bill which is usually Rs. 1000 per month get autodebited from my bank account on 10th of every month.
I can make an investment in a mutual fund scheme and i would give an SWP instruction few days earlier to my electricity bill autodebit.. say on say 5th of the month for the said Rs. 1000
So, on 5th of every month, i get a payout of Rs. 1000 to my bank account so that the electricity bill will get honored.
I intentionally allowed a gap between 5th and 10th to allow redemption processing time and bank holdings that might come in between.
In a similar manner, you can plan for payments of kids school fees, payment of house rent etc. which have a fixed amount of payment to be made on fixed dates.
If u carefully plan your investments, you can use this option to specify pension type of money withdrawl.
This is why i say Mutual funds can be good wealth creation as well as retirement tools.
Related Topics
- Introduction to Mutual Funds
- Mutual Fund Units
- New Fund Offer (NFO)
- Ongoing New Fund Offers (NFO)(List updated on Mar 2, 2017)
- Net Asset Value or NAV
- Know Your Customer / KYC
- Expense Ratio
- SIP vs Lumpsum Investments
- DIRECT plan vs REGULAR plan
- GROWTH option vs DIVIDEND option