How to Use the SWP Option for Retirement Planning


Retirement planning is an essential aspect of financial goals that a person should plan for early in life. Retirement planning, however, is not just about creating a corpus, but also how you can optimally draw from it for your expenses, with the help of SWP.

Anup Bansal, Chief Investment Officer at Scripbox, says, “With the help of a Systematic Withdrawal Plan (SWP), as an investor, one has the ability to withdraw a fixed amount of money from a fund at regular intervals. This is the complete opposite of a Systematic Investment Plan (SIP).

How it works?

As an investor, you must first invest a lump sum in a fund. You can then opt to transfer a fixed amount from the invested funds at regular intervals via SWP.

Simply put, through this method, you invest a corpus first to withdraw a fixed monthly amount later.

According to experts, thanks to the SWP, investors are protected against market instability and also avoid timing the market.

For retired or elderly people, or who are looking for a fixed income and want to get a monthly income for daily expenses, SWP is an ideal option.

Bansal says, “In my opinion, the Systematic Withdrawal Plan (SWP) can be a great option in retirement planning.”

Here are some factors to consider when using the SWP option;

Pay attention to the withdrawal rate: SWP allows you to withdraw a certain percentage or amount every month/quarter/annually. “The withdrawal rate must be sufficient to cover its expenses. One may periodically review one’s cash flow needs due to lifestyle changes, life goals, and inflation,” Bansal adds.

Save tax with SWP: When using the SWP option, the tax impact is much lower compared to a fixed interest bearing instrument because tax is levied on the gains of the units withdrawn.

Table: Comparison of the tax incidence between a fixed deposit and a mutual fund with SWP option. (This is for example purposes only with certain approximations and not indicative of actual returns.)

Corpus Rs 1 CR
To return to 6%
Withdrawal per month Rs.50,000
Rate of the tax slab ten%
Tax on fixed deposits Rs.5000 (10%*50k)
Mutual fund tax Rs.290

Better cash planning: You have the authority on when you want to withdraw the amount (frequency) based on your income versus expenses. Bansal explains, “It clarifies how to better budget for your family. »

As an investor, if you don’t withdraw the amount all at once, you also benefit from compounding, which enables wealth creation.

He further adds: “The SWP for retirement is a great option. The prerequisite is to build up a large sum that you can rely on for the last time.

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