SWP
SWP
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You can withdraw a certain amount from a specific mutual fund scheme at a specific frequency (monthly, quarterly, etc.) using the Systematic Withdrawal Plan (SWP), a service provided by mutual fund firms. A Systematic Investment Plan (SIP) is the opposite of an SWP.
EXAMPLE OF SWP :
Raj invested Rs. 10,000 per month for five years, accumulating Rs. 10 lakhs in an equity mutual fund plan. Raj created a Systematic Investment Plan (SIP). Raj now withdraws the funds from the stock fund and puts them into a debt fund. For the next four years, he gives instructions to redeem Rs. 20,000 from the debt fund into his bank account each month. An SWP is what Raj did.
BENEFITS OF SWP
Flexibility : A SWP plan gives the investor the freedom to select the amount, frequency, and date in accordance with his or her needs. The investor may also stop the SWP at any moment, make additional investments, or withdraw money in excess of the fixed SWP withdrawals.
Regular Income : SWP in mutual funds makes investing easier for investors by generating a consistent income from their holdings. For people who want consistent cash flow to cover ongoing expenses, this becomes very beneficial and convenient.
Capital appreciation : As seen by the aforementioned example, if the SWP withdrawal rate is smaller than the fund return, the investor will also experience capital growth over the long run.
No TDS : For resident individual investors, there is no TDS on the SWP amount.
BENEFITS OF DEBT FUND SWP
If you get a lump sum of money, you can either start an SWP and invest it in a debt plan, or you can put it in a bank savings account. When compared to a bank savings account, the debt fund SWP offers the potential for greater gains. Typically, a savings account gives yearly interest rates between 2 and 4%. You may be able to earn returns with debt funds in the range of 3 to 8% CAGR, depending on the type of debt fund you select and the interest rate environment.
HOW TO USE SWP FOR LOAN REPAYMENT?
A lump sum payment may have been made to you as a bonus from your company, a complete and final settlement from your former employer, a cash award from a contest, or the maturity amount from an investment. You might be thinking about the best way to spend this cash to settle a loan balance.
You could store this money in a savings account where the loan EMI is automatically deducted. In this scenario, you will receive the interest from the savings account, which might be between 2 and 4% p.a. on the sum.
The alternative is to form an SWP and invest the bulk money in a debt mutual fund scheme. The SWP amount may be equal to the monthly loan payment. The SWP date can be set up so that the funds enter the savings account around three days before the EMI debit date.
Frequently Asked Questions (click here)
Q. What is a systematic withdrawal plan?
A. The SWP is the opposite of a SIP. In a SIP, you invest a fixed amount each month (the most frequently used interval) and build up a lump sum. In an SWP, you invest a lump sum and withdraw a fixed amount each month (typically) to be used as a source of income.
Q. Why do I need a systematic withdrawal plan?
A. You can time your withdrawals based on your financial needs with the use of an SWP. You could choose an SWP if your goal needs to be paid in stages. It will guarantee that the money is available when it is needed. Investors who want a second source of income in addition to their wage benefit from an SWP as well. With the help of this strategy, investors like you may generate a steady stream of income from their holdings. This is a terrific strategy to satisfy your demands if you want to have recurring revenue for things like travel or other expenses.
Q. Why Is the Systematic Withdrawal Plan a Good Investment Option?
A. This is a sensible financial move for two main reasons. First off, tax deductions at source (TDS) are not applied to these withdrawals—which are really redemptions—in any way. However, the withdrawn sum is subject to tax on the capital gains. You can also decide to set up your withdrawal so that you just take out the profits from your investment. This keeps your money invested while also allowing you to enjoy the rewards periodically.
Q. What are the withdrawal options?
A. You have the option of making a fixed withdrawal from your investment on a monthly, quarterly, bi-annually, or annual basis. You can withdraw only the amount that has increased in value at the intervals of your choosing when using the appreciation withdrawal option.
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