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The concept of Systematic Withdrawal Plan (SWP)


A Systematic Withdrawal Plan (SWP) allows investor to withdraw certain amount from their existing mutual fund portfolio on a regular basis. Often, investors opt for this plan during retirement to meet out their expenses. Money withdrawn from the systematic withdrawal plan can also be re-invested into some other investment scheme on regular basis.


With a systematic withdrawal, units of your portfolio are liquidated, or sold to supply the stated amount of your withdrawal. Investors can withdraw fixed or variable amount on regular basis, they can choose the intervals as per their needs, that can be monthly, quarterly, semi-annually or annually.

Points to remember about SWP

Meeting out needs: SWP helps you to withdraw your money whenever you need. It provides you the flexibility to meet out your expenses and financial goals.

Tax benefits: Investors should also consider SWP as a tax-planning tool, as withdrawals made under SWP are from capital gains. Tax applicable on long-term capital gains are relatively lower.

Average rate of return: Most investors look at the portfolio's average rate of return to determine whether they have enough money after retirement or not. Where as retirees are always concerned with annual rate of return rather than average rate of return. The problem here is if in one year the portfolio does not perform and to fulfill the expenses the investor is forced to withdraw a chunk of of investment, then their estimated return on the portfolio changes in the upward direction dramatically. This will result in the fact that they would lose major chunk of their portfolio in the very first year of their retirement which may affect their average return in future.


OneIndia Money

Read more about: mutual funds investment tax
Story first published: Thursday, May 26, 2011, 13:01 [IST]
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