4 min read
Updated on Mar 13, 2023
In stark contrast to lump sum withdrawals from a mutual fund, an SWP can create a stream of income that the investor can direct to their savings bank account. Using the SWP, the investors can create a cash flow that can supplement their monthly income and continue receiving the steady cash flow well into their retirement.
The investor can choose to reinvest the fund into another instrument or gain benefits in form of cash. The two options available to the investor are either to withdraw a fixed amount at certain intervals or withdraw the capital gains earned on the mutual fund investment.
As the mutual fund investments are subjected to market fluctuations and risks, the capital gains from the mutual fund may vary according to the market conditions. Market fluctuations may cause the fund NAV to be adversely affected and a timely withdrawal can prevent the erosion of fund returns. That is where an SWP can be a great tool for investors to withdraw their earnings from the fund in a phased manner. It is also helpful to the investors who are investing with a goal in mind. It protects the fund earnings from adverse market conditions. It can be also planned in a way to ensure that your capital remains invested while the gains are siphoned to the savings account of the investor.
The Systematic Withdrawal Plan has proven to be a beneficial investment option due to the following reasons.
Before you make up your mind regarding the SWP and the important role it can play in your financial portfolio, you must consider certain factors.
A Systematic Withdrawal Plan can easily fortify the cash flow of the investor or provide a secondary stream of income. This makes them a lucrative investment plan. You can use the Systematic Withdrawal Plan calculator to estimate the amount that you can hope to gain from your mutual fund investments. Once you have decided on the desired amount, you can browse through and compare the best Systematic Withdrawal Plan in India and choose the one that fits your needs.
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A Systematic Withdrawal Plan (SWP) is an investment strategy where an investor withdraws a fixed amount of money at regular intervals (weekly, monthly, quarterly, etc.) from their investment portfolio. It is the opposite of a Systematic Investment Plan (SIP), where an investor invests a fixed amount of money at regular intervals.
SWP can provide a regular source of income for investors who require a fixed income flow. It can also help manage the risk of selling investments during market downturns. With SWP, investors can withdraw only the required amount, leaving the rest of their investment to grow and compound over time.
SWP is suitable for investors who have accumulated a significant amount of money in their investment portfolio and want to withdraw a regular income from it. It is also useful for retirees who want to generate income from their retirement savings without depleting their principal.
The primary risk associated with SWP is that the value of the investment portfolio may decrease due to market fluctuations, which can lead to a reduction in the amount of income generated from SWP. Additionally, the fees and expenses associated with SWP may reduce the overall return of the investment portfolio.
In a lump-sum withdrawal, an investor withdraws the entire investment portfolio in a single transaction. With SWP, an investor withdraws a fixed amount at regular intervals. SWP helps manage the risk of selling investments during market downturns and provides a regular source of income. Lump-sum withdrawal, on the other hand, can be useful when an investor needs a significant amount of money at once, but it can also lead to a depletion of investment principal if not managed carefully.
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