Everything you need to know about Systematic Withdrawal Plan

Published On: 01-Sep-2017

On a beautiful night in Goa, a sky filled with stars with a cool wind breezing past the sea shores, Anil looked worried. Isn’t it unusual? Rhea promptly put her hand on Anil’s shoulder and asked what bothered him. For years they had been planning this night and suddenly it didn't seem as enjoyable as it should be. Anil with a straight face replied, “In a few years I will retire. Life has simply zoomed past us while we were busy working. We are so habituated to having a monthly income, what will happen when I retire? We won’t be able to maintain our lifestyle and might have to be dependent on our children. What if our children don’t live with us? Then who will take care of us?”

Listening to this, Rhea had a faint smile on her face and told Anil to calm down as they would sort it out the next day once they are back home in Pune. Anil still did not seem to be pacified. Thus Rhea thought of inviting their friend Nikhil to their place the next day, a financial advisor who lived in the same building. 

Nikhil knew Anil well and had listened to his dilemma with complete attention. Anil also mentioned about his investments and financial liabilities in details. Anil had started SIPs in few mutual fund schemes for tax saving and wealth creation. Going through his statements of investment, he saw that Anil was investing for last 12 years and had managed to build a decent corpus that could take care of his retirement. Every month a fixed part of Anil’s salary was going in mutual funds through SIP, like everyone he had not thought about the end use of money while starting it. It was a mere tax saving option.

Nikhil had a smile on his face as he said there is nothing much to worry and suggested to keep those SIPs going till the time he is earning. He even suggested increasing his investments as and when possible. Nikhil suggested starting an Systematic Withdrawal Plan (SWP) immediately once he retires to take care of their monthly expenses and other needs. Rhea had only heard about Systematic Investment Plan (SIP) as they were doing it regularly. 

Nikhil explained it is just a reverse of SIP. Using SWP option, Anil could withdraw a fixed amount periodically from his existing mutual fund investments. Based on the liquidity needs, he can opt for a fixed amount that could be required to meet his needs and accordingly decide on the withdrawal frequency that could be on a monthly, quarterly or annual basis.

As he would retire, his SIP would stop and he would avail the benefits of SWP with money coming in every month. Anil seemed happy as he realized that he could now start enjoying the fruits of his investments once he retires. Taking discussion ahead, Nikhil introduced 2 types of SWP

  1. Fixed SWP

This meant, at every pre-determined time interval Anil would be able to withdraw a fixed amount until he wishes otherwise. There was no need to worry about household expenses anymore. 

Now, there was a relief on the faces of Anil as well as Rhea.

     2. Capital Appreciation SWP

As the name suggests, Anil can also opt for a payout of his profits at different time intervals. It took care of his corpus. If his corpus was Rs.1 crore then at a pre-determined time interval, his profit on the same would be automatically get credited to his bank account.
Suddenly, Rhea was thrilled and enquired as to how they can start SWP in their existing investment. Nikhil said that it requires only one time SWP instructions towards the mutual fund scheme/s and the process would then take care of itself. Rhea enquired that under SWP, can they withdraw remaining amount if they needed it on an urgent basis? Nikhil replied, “Yes, just by submitting a simple redemption instruction, you can redeem from your investments anytime. Also, SWP instructions can be stopped or changed anytime.”

After the whole conversation ended, there was a huge smile on Anil’s face and he fixed one more night out under the sky with his wife Rhea and promised her that he won’t get worried about money henceforth and enjoy holidays, stress free!