Systematic Withdrawal Plan (SWP)
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.
Here are some important features of an SWP:
-
It is a facility to redeem units regularly
-
You can choose the frequency of withdrawals
-
You can either withdraw a fixed amount or only the capital appreciation
-
It is ideal for investors seeking regular income from their investments
Effective uses of an SWP
Here are some effective ways of using 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.