With the time of retirement approaching, the need for a full and regular source of income starts increasing. For those who have invested in mutual funds, a better strategy is to convert their investment into regular cash flow through a systematic withdrawal plan (SWP).
What is a systematic withdrawal plan (SWP)?
Systematic withdrawal Plan (SWP) is a facility under which you can regularly withdraw a fixed amount from your mutual fund investment (monthly, quarter, half or annually). Instead of extracting a lump sum, you can regularly redeem your units, while a large part of your investment will remain. In this, returns will continue to be received according to market performance on the rest of your portfolio.
How does SWP work?
When you start the SWP, the sale of mutual funds is ensured according to the withdrawal amount. For example, if you have invested in mutual funds and have decided to withdraw Rs 10,000 every month, units equal to this amount will be sold every month. The value of these units will be decided in terms of existing net asset value (NAV) of mutual funds at the time of withdrawal. In the coming time, according to the performance of the market, the value of the rest of your units may increase.
Why choose SWP for retirement?
At the time of retirement, most people have two financial motives: regular source of income and security of capital. SWP is favorable according to both these goals, as it also has flexibility with regular income. In addition, the safety of capital is also ensured in the scheme.
How SWP is helpful in retirement planning
Investors who have planned their retirement saving through mutual funds have to face dilemma about how to manage these savings by ensuring growth and income. SWP solves this problem with these benefits.
1. Sahara against market fluctuations: SWP ensures that you do not have to sell your entire investment at a time. This thing is very important in ups and downs. If the market is also below, then you immediately sell only a few units and the rest of the portfolio has a chance of recovery as well as the market.
2. Income based on inflation: The traditional source of income such as pension and fixed deposits is not fully covered. By investing in growth based mutual funds, your portfolio has a chance to get ahead of inflation and your purchase power remains well for a long time.