Systematic Withdrawal Plan

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What is a Systematic Withdrawal Plan?

With the Systematic Withdrawal Plan, you can customize the cash flow as per your requirement. You can choose to either withdraw just the capital gains on your investment or a fixed amount. This way you will not only have your money still invested in the scheme, but you will also be able to access regular income and returns. The money that you withdraw can be used to reinvest in some other fund or can be retained by you in the form of cash.

Why do I need a Systematic Withdrawal Plan?

With this plan, you as an investor can create a flow of income from your investment that is regular. If you seek to have periodic incomes for your travel or other needs, this is a great way to set this provision. It should be created in such a way that when you need cash the most, it is available.

Why is the Systematic Withdrawal Plan a good investment option?

There are two main reasons why this is a wise investment strategy. Firstly, these withdrawals which are also referred to as redemptions, are not subject to tax deductions at source. The capital gains though are taxed on the withdrawn amount. You may also opt for setting up your withdrawal in such a manner that you only draw the appreciation that is made on the investment amount. This keeps your capital invested while at the same time you enjoy the gains on a regular interval.

How does a Systematic Withdrawal Plan work?

When you choose a Systematic Withdrawal Plan, it affects your mutual fund account as well. It is important to note that an SWP is not the same as opening a fixed deposit account in a bank where you receive monthly interests. With a fixed deposit, the corpus value is not impacted when you withdraw the interest but in the case of a systematic withdrawal plan in mutual fund schemes, the value of your fund is reduced by the number of units you withdraw.

Benefit of SWP

·        SWP allows the investor to stay invested and save and take out only required amount.

·        SWP can be well planned and could be a very effective way to generate a second income by investing in hybrid schemes like monthly income plan and protects the capital and use the gains of the investment.

·        SWP can be a ‘pseudo pension’ in the form of an annuity for those who will not be getting a pension once they stop working.

·        SWP puts discipline of withdrawing the money.

·        SWP offers tax advantage since money withdrawn in the first year through SWP does not attract short-term capital gain tax.




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