Systematic withdrawal plan

Key Takeaways

• A systematic withdrawal plan or SWP is a way of withdrawing a specific amount of money at regular intervals. 

• Disciplined investing, rupee-cost averaging, tax efficiency and fixed income are four main benefits of a systematic withdrawal plan

What is a systematic withdrawal plan?

A systematic withdrawal plan or SWP is a way of withdrawing a specific amount of money at regular intervals. 

This works best for retirees who require a steady income stream and don’t want to time the market while redeeming or withdrawing their earnings. A method of routine withdrawal functions similarly to a pension for retirees.

Benefits of Systematic Withdrawal Plan

Disciplined Investing

A systematic withdrawal plan automatically redeems some units of mutual funds every month to meet the monthly expenses of the investor. Therefore, it prevents investors from making impulsive decisions about withdrawal and investing.

Rupee-Cost Averaging

When investors withdraw their investments because of rupee cost averaging, they get benefitted. Investors get the average NAV over several months or years through the rupee cost averaging.

Fixed Income

A systematic withdrawal plan provides a fixed periodic amount to the investor which can act as a steady source of income in the investor’s retirement years.

Tax Efficiency

Every withdrawal made through a systematic withdrawal plan consists of a capital component and an income component. Tax is only imposed on the income component.