The Systematic Withdrawal Plan (SWP) is an investment strategy that helps receive regular income from mutual fund investment without compromising the initial capital amount. It incorporates the advantages of investing in mutual funds with the convenience of a steady income stream.
If you are saving for retirement or certain long-term goals, SWP can be a valuable tool in your financial planning. This blog will explore how to invest in SWP mutual funds.
How to Invest in SWP Mutual Fund?
Mutual funds offer a Systematic Withdrawal Plan, allowing investors to sell units of the funds to receive a fixed amount of money periodically (monthly, quarterly, or yearly).
SWP is more popular among those investors who want a steady income from their investment while potentially benefiting from market fluctuations. Investors must follow the following steps to invest in a SWP mutual fund.
Create an Account for Mutual Funds
Investors must open a mutual fund account with an online investment platform or a registered mutual fund distributor to make investments.
An investor has to fill out an application, provide KYC paperwork, and finish other requirements to set up an account.
Self-Evaluation of Financial Goals and Risk Tolerance Level
Before investing in SWP mutual funds, it’s crucial to assess the financial goals, time horizon, and risk tolerance of the amount to be invested.
Finding out how much money you require, for how long you require that money, and what level of risk you are willing to take concerning your investments, etc. will help an investor in deciding the right mutual fund scheme for their strategy.
Selecting the Appropriate Mutual Fund Plan
It’s important to select the right mutual fund plan that suits your unique goals. Consider the mutual funds that fit your time horizon, risk tolerance, and investing objectives. SWP applies to all mutual fund types, including debt, balanced, hybrid, and equity funds.
Investor preferences must be taken into consideration when choosing an investment strategy because each mutual fund has a unique risk and return profile.
Specify the Amount and Frequency of the SWP
Once you have an account with your funds, the next step is to determine how much you wish to withdraw periodically via SWP and the frequency of withdrawals (e.g., monthly, or quarterly).
This decision should be made based on your income needs and the performance of the selected mutual fund scheme.
Set Up the SWP
To set up a SWP, specify the amount to withdraw, the frequency of withdrawals, and select the mutual fund scheme you want to withdraw from. You may also have the option to choose the mode of payment (e.g., direct credit to your bank account).
Review and Monitor Regularly
After setting up your SWP, regularly pay attention to the returns on your mutual fund investments and the amount withdrawn.
Regularly reviewing your SWP strategy is essential to ensure it aligns with your financial goals and to make adjustments based on market conditions or personal circumstances.
Advantages of investing in SWP Mutual funds
Investing in SWP mutual funds offers several benefits. Some of them are discussed below:
Regular Income
SWP provides a systematic way to generate income from investments. By setting up a SWP, investors can withdraw a predetermined amount of money from their mutual fund at specified intervals, like monthly, quarterly, or annually.
This provides a steady stream of income, which can be particularly beneficial for retirees or individuals seeking a fixed and regular income.
Potential Capital Preservation
The biggest benefit of SWP is that it can help in achieving capital preservation in the long run. SWP lets investors sell some portion of their stocks based on market conditions while the rest of their investments remain untouched.
This strategy can be beneficial for keeping and increasing the capital steadily in the long term, including the phase of market volatility.
Convenience
SWP also provides the convenience of automatic withdrawal of funds at periodic intervals. This eliminates the need for manual transactions and ensures that investors receive their income consistently without having to actively monitor their investments.
The regularity of SWP withdrawals also helps in achieving financial discipline, staying on track with financial goals, and avoiding the temptation of impulsive spending.
The Bottom Line
Investing in SWP mutual funds can be an effective strategy to generate regular income while potentially preserving your capital and taking advantage of market fluctuations. By understanding their financial goals and risk appetite, choosing the right mutual fund schemes, and implementing a well-thought-out SWP strategy, you can create a steady income stream.
Remember to regularly review and adjust your investment to achieve your financial objectives.
