S W P - Systematic Withdrawal Plan



SWP is the powerful retirement planning tool but it has not got it's share of publicity that it deserves. It is commonly used tool to plan the retirement. 
There are two types of financial instruments which are widely used for the generating the consistent cash flow by individuals to meet their livelihood expenses after retirement. 

1. Debt instruments: Debt instruments are those instruments where the investors are assured fixed returns irrespective of any events. Typically, orthodox Indian investors have preferred FDRs those give interest amount at maturity or at certain intervals as selected by investor. Also there are Gsec i.e. government securities, bonds etc which give fixed returns. Indian middle class has always preferred this less risk method and hence they are ready with the lesser reward associated with this approach. 



2. Equity instruments: Equity instruments offer income by way of capital growth and dividends. The risk involved in equity instruments is significantly higher and hence the returns generated are also multifold. The returns are non-linear and generally give higher returns over longer time horizon. The new age investors have preferred this investment method with greater the risk greater the rewards. approach. Investor can directly invest in the equity or choose the mutual fund route where the mutual fund manager will manage the scheme portfolio to generate better returns.

Here we will be going ahead with the new age investors dilemma of how to get some amount at fixed intervals like debt instruments but without letting go of the returns of equity instruments. And the solution to this is SWP. 

SWP stands for systematic withdrawal plan. Under SWP, if you invest lump sum in a mutual fund, you can set an amount you’ll withdraw regularly and the frequency at which you’ll withdraw. Retirees and senior citizens are among the most common investors in this scheme. Such individuals obviously require a fixed monthly financial input.

The 4% SWP Rule?

The 4% rule states that you can withdraw up to 4% of your investment assets from your account and enjoy a retirement that lasts thirty years. It's a traditional metric that doesn't work for everyone, but it still used as a general rule of thumb.

The SWP Calculator is a simulation that shows you the monthly withdrawals from your mutual fund investments. It shows the total value of the mutual fund investment after the withdrawal. You may be able to get a regular income in retirement through the systematic withdrawal plan. The SWP Calculator consists of a formula box, where you enter the total investment amount, withdrawal per month, the expected annual rate of return, and the tenure of the investment. The SWP Calculator shows you the future value of your mutual fund investments.



This is the typical SWP calculator which will provide you approximate returns of your corpus investment after monthly withdrawals for the fixed period at fixed return rates.  One should note that the returns % selected here is 12% which is average return of the Indian share markets over the time. The withdrawal here is 6% per annum whereas expecting 12% returns, hence the expected investment value keeps increasing. Mind you the SWP product is very effective tool and it performs even better when the time horizon selected is on higher side.

Advise for the youth will be to start the SIPs early on and build the corpus (FIRE NUMBER) to afford peaceful retirement. We have covered more on FIRE number in our post -

As usual, kindly make sure you consult your financial advisor before taking any decision about finances as FINANCE MATTERS and it matters for everyone😇.



- SACHIN GOSWAMI

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