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How is SWP helpful in investment growth for a long period?
Posted on Wednesday, September 21st, 2022 | By IndusInd Bank
A systematic withdrawal plan or SWP is an attractive investment feature with mutual funds using which investors can withdraw from their current investment portfolio in the form of a fixed amount at fixed intervals. Although SWP is the most commonly used, it is also the most misunderstood approach to investment. Therefore, it is imperative to understand it to help structure a retirement plan. Using SWP, you can withdraw from your mutual fund stock/scheme every month/6 months, etc., on set dates. This way, you can redeem your invested amount in a phased manner – making the entire process the exact opposite of SIP (systematic investment plan.)
How does SWP Work?
You can use SWP as your monthly income after your retirement. The justification behind this approach is to have access to your own money when you need it the most. You can opt for a fixed withdrawal amount or only get the capital appreciation on your principal investment.
You should always plan about when to initiate the SWP and not when the market goes down! The downward journey of a market presents the perfect opportunity for SIP and not SWP. Therefore, retirement is ideally the perfect time to start SWP because it is the time your regular income flow ceases, and you would need an extra source of income to manage your daily needs without compromising your standard of living.
E.g., let’s say you have INR 1,00,000 invested in a mutual fund stock and you want to receive INR 5000 monthly. You can instruct your bank or brokerage firm to sell 20 shares per month 100,000/5000 and deposit the proceeds to your bank account.
Let’s take another case where you want an SWP of INR 1000 on an investment of INR 1L for 5 years. You expect to get a return of 10% on your investment, and in 5 years, your total payout will be INR 60,000, whereas the value of the rest of your investment after 5 years will be INR 84,500. This way, SWP helps you get a monthly sum, and at the same time, the remainder of your units keep appreciating as per the market valuation.
Benefits of SWP
- Regular Income: You have a steady stream of income post-retirement which can help you budget and manage your finances.
- Flexibility: You have the flexibility of choosing the payout amount and frequency as per your convenience.
- Capital Appreciation: When you sell your investment in a phased manner, you have the option of locking your profits while keeping a portion of the investment away for future potential growth.
- Tax Benefits: Instead of paying tax on the entire investment profit, when you get a portion of the profits monthly, your tax payout is also less – which helps minimize your tax liability.
Final Words
Therefore, as long as the market is performing well, you can keep getting a higher SWP amount. SWP is quite effective for generating regular cash flow, but it should be planned thoroughly by keeping your future financial goals in mind. Unplanned way of initiating SWP may prove detrimental to your financial goals. To plan your investments, seek assistance from experts at IndusInd Bank whose wealth management scheme can serve you well in the long-run. They offer investment in various asset classes and manage your investment portfolio so that you can enjoy the returns without any hassles. To know more, visit IndusInd Bank’s website today!
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
