Systematic withdrawal plan
- 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.
Generally, this is suited for retirees who need a continuous flow of income and want to avoid timing the market on when to redeem or withdraw their earnings. A way to regularly withdraw works like a pension for retirees.
Benefits of Systematic Withdrawal Plan
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.
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.
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.
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.