What is a systematic withdrawal plan?
Systematic withdrawal plan is a facility offered by mutual funds, allowing an investor to withdraw a pre-determined amount at pre-decided intervals from selected mutual fund schemes. Through the way of SWPs, an investor can create a regular cash flow for fulfilling his retirement needs or any specific needs including your child's education, wedding, etc.
Under a systematic withdrawal plan, an investor can customize the cash flow either withdrawing the capital gains on the investment amount or a fixed amount.
Why opting for a systematic withdrawal plan is a good idea?
- Redemptions from SWP are not subject to tax deductions, though the capital gains are taxed on the amount withdrawn.
- An investor can also opt for withdrawing the capital appreciation and keep the capital invested to enjoy the gains on a regular interval.
Withdrawal options in SWP
With a fixed withdrawal option in SWP, one can access a specified amount from the investment on a monthly or a quarterly basis. Whereas, with the appreciation withdrawal option, only the appreciation on the investment can be withdrawn on a monthly or quarterly basis.
How Does SWP Work?
A Systematic Withdrawal Plan works opposite to SIP. In the case of SWP, an investor instead of saving money on a regular basis can withdraw a fixed sum of money from his investment.