Why You Should Consider an SWP for Steady Financial Security

First things first, Thank you all so much for the incredible response to the survey in my last edition! I was absolutely blown away by your participation. It’s been amazing getting to know you all a bit better. And guess what? As promised, this issue is dedicated to one of the topics you suggested. Among all the fantastic ideas, one stood out to me because I had never heard of it before. The way it was suggested really sparked my curiosity too😂, and I just had to dive in!

Alright, my fellow couch potato, I feel your struggle. This whole spiel is for you ( little about our sloth at the end). I totally get it—filtering through a mountain of sources that may or may not be reliable. But fear not! I've got a little something that will make your life a whole lot easier. And guess what? It's free! So go ahead, dive in and thank me later.

Without further Ado, let’s jump into our topic. You might be wondering what exactly is SWP. Well, it is the long lost brother of Systematic Investment Plans (SIP)😂. Here is the definition:

The SWP stands for Systematic Withdrawal Plans. It’s a divestment plan offered to the investors allowing them to withdraw a fixed amount from a mutual fund scheme regularly. The investor can choose the amount and frequency of withdrawal. They can also choose to withdraw just the gains form the investment keeping the invested capital intact.

For eg: Suppose you invested INR $5000 dollars in a mutual fund, and you set up an SWP to withdraw $200 every month. On the set date, $200 will be transferred to your bank account, while the remaining continues to earn returns in the mutual fund. This helps the investor to get a regular income while keeping their investment growing.

Well, then the next questions that arises is, what is the point of removing the investment on a regular basis? Isn’t it counterintuitive if we are planning to make some investments? What are the advantages?

First of all, if your investment value appreciates over time and your monthly withdrawal is less than the appreciation value, your investment actually grows while giving you monthly income of a certain amount. It sort of helps you maintain a balance between an income stream and allowing your remaining investment to grow. Apart from that, here are a few other strategic advantages of availing for a SWP:

• Steady Income stream: No brownie points for guessing this.

•  Investment Discipline: Helps manage the market impact fluctuations and avoids the risk of withdrawing too much during a market downturn.

• Tax Benefits: As an investor, there is not tax deducted at source for SWP unlike the Dividend Distribution Tax (DDT). In simple words, no source tax on your withdrawals. Especially useful for people in high tax brackets.

• Dollar/Rupee cost averaging: In most simplest of words, you redeem or sell more of your investment units when market is low and less of your investment units when market is high to withdraw your fixed amount. Over time, the effect of market fluctuations is averaged out.

Who is it most beneficial for?

A SWP is ideal for the following types of investors:

• Retirees: Again, no brownie points for guessing this.

• Those seeking a regular cash flow: Investors who need additional income to meet monthly expenses.

• Investors with a low-risk appetite: Not being forced to sell during a low market is something loved by a lot of investors.

• Systematic Drawdown: Investors who have accumulated wealth and are now in the distribution phase, looking to convert their investment into regular cash.

• Investors seeking flexibility: Unlike fixed income products, SWPs offer the flexibility to change the withdrawal amount or stop the plan altogether. Ideal for investors who loves this flexibility.

Conclusion

So, there you have it! SWP is like enjoying your cake while it keeps getting bigger. Imagine living your retirement without worrying about running out of money or sending your child to college without making big sacrifices. It's like having a money tree that gives you just enough to stay comfortable while still growing. So why not give it a try? After all, who wouldn't want a steady stream of cash without the stress of market ups and downs?

Alright, let's dive back into the story of the guy who sparked the idea for this issue—our wonderfully laid-back friend! This IT wizard specializes in back-end magic but is also venturing into the thrilling world of cloud services. And guess what? He is open to connecting on LinkedIn! Check out his profile and get ready to be inspired!

I hope you enjoyed this edition and it added value to your knowledge base. So tell me,