Business News Desk – NPS is a government scheme through which you can arrange a lump sum amount and pension for yourself in old age. But if you are close to retirement or have retired and now you do not have the option of NPS, then you can arrange regular income for yourself through SWP i.e. Systematic Withdrawal Plan. Know what is SWP and how does it generate your income?
What is SWP
SWP is an investment under which the investor receives a fixed amount from the mutual fund scheme every month. The investor has the option to decide how much money he can withdraw in how much time. He can withdraw this amount as per his wish, monthly, quarterly, half-yearly or yearly. However, the monthly option (regular monthly income) is more popular.
When and how to start
You can start SWP anytime for regular cash flow needs. If you are investing in a scheme, you can activate the SWP option in it. To activate SWP, you have to fill an instruction slip in the AMC, which will mention the folio number, frequency of withdrawal, date of first withdrawal, bank account to receive the money.
Difference between SWP and SIP?
In SIP, a fixed amount is deducted from your account every month. The amount deducted from the account goes for investing in mutual funds. In SWP, the fixed amount comes into your bank account. You get the SWP amount by selling mutual fund units. If the money in the fund runs out, then SWP will stop.
In this way you can earn up to Rs 35,000
If you invest these 50 lakh rupees in different plans for SWP and you get an estimated return of 8.5 percent, which will be Rs 4.25 lakh annually. In such a situation, if you want to get income every month, then you can take 4.25000/12 = Rs 35417 as monthly income. You have to decide whether you want to earn through SWP on a monthly, quarterly, half-yearly or yearly basis and choose the option accordingly.
Advantages of SWP
Investors can choose the amount according to their needs. There is a possibility of good returns by maintaining investment in the market. This is a good option to beat inflation. It can withstand fluctuations in the market.
It is very important to take these precautions in SWP
Never run SWP with equity mutual funds. Your fund gets affected when the market falls. In such a situation, you will have to sell more units for the fixed amount and this will exhaust the portfolio very quickly. Debt/liquid funds are considered better options for SWP.
