July 19, 2024
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SWP for twilight years

The systematic withdrawl plan or SWP defines a scheme or policy were an investor can withdraw a required amount from his/her investment at regular intervals. SWP is more often found in mutual funds.

The basic strategy of SWP

The formula that operates the SWP policies are based on two factors; the interval at which the investor wants to withdraw money and the amount that can be withdrawn at a time.

The interval may be selected in a monthly, quarterly or yearly plan. The amount can also be a selected fixed amount in every interval or it may be variable amount in each interval. The resemption in SWP policies is based on the total units of investment held, even if it is a variable amount selected or a fixed amount opted for withdrawl. The redemption also depends on the Net Asset Value (NAV) on the particular day of withdrawl. The  NAV value is the factor deciding the units that can be redeemed on a particular withdrawl value. The total units to be carried forward will be the remaining units after the redemtion process. If the NAV value increases on any month, it would decrease the units of redemption eventually. Thus NAV and redemption units share an inversely proportional relationship.

SWP calculators- the estimation count of investments

The SWP calculators are nothing but tools to calculate the estimated left over amount after redemption of a particular number of units at intrervals from the investments. It hekps the investor keep a check on the overall investment worth. These SWP calculators are widely available in internet.

SWP audiences- the senior citizes and the retirees

The primary targetted sector of the society that opts out SWP policies are the senior citizens and the retirees. They form the core participants. The SWP policies provide them with a secured money at regular intervals in a very similar way like pensions.

There are two tax benifits of the SWP redemption. If the SWP amount is 1,00,000 or below, capital gain tax is not applicabe in the scenario. Moreover, SWP redemptions are not subject to Source tax deductions or TDS. The first clause is however effective for only equity mutual fund SWPs. SWPs on any other funds are taxed an amount as a part of income.

If chosen correctly, the SWP cam serve as the ultimate source of financila stability and security in the twilight years. It is the only fund source in the retired phase of life.