Power of SWP

Retirement marks a new phase of life - one filled with freedom, and ideally, financial peace. But while your work may stop, expenses certainly do not. That’s why retirees need a strategy to generate regular income without compromising the long-term value of their investments.

Enter the Systematic Withdrawal Plan (SWP) - a simple yet powerful feature of mutual funds.

Let’s take a practical example (this is an excerpt from the book ‘Mango Millionaire’ by Radhika Gupta, MD & CEO of Edelwiss Mutual Fund) .

Imagine you have Rs 50 lakh invested in a mutual fund. You decide to withdraw 6 percent in a year (that’s Rs 25,000 a month) through an SWP, while the fund itself grows at 12 percent per year. How much money do you think you’ll have left in your mutual fund at the end of five years?

After five years, despite withdrawing Rs 15 lakh, your portfolio doesn’t reduce. In fact, it grew to Rs 68 lakh. That’s the magic of compounding returns outweighing your withdrawal rate. While you pull out 6% per year, your investments grow at 12% - creating a positive gap that builds wealth even as you enjoy a steady income.

Now, let’s look at why SWPs make so much sense:

Tax Efficiency

Only the gains on your withdrawn amount are taxed - not the entire withdrawal. This is far more efficient than fixed deposits, where the entire interest income is taxed each year.

Capital Growth with Safety

Unlike traditional pension plans where your corpus gradually depletes, an SWP allows your money to stay invested. The unwithdrawn portion continues to grow and compound. This helps your portfolio keep pace with inflation and even grow beyond your starting capital.

Complete Flexibility

Life is dynamic - your income needs might change over time. SWPs let you adjust your withdrawal amount at any point. You can increase it when required or reduce it during market volatility. This flexibility is a big advantage over fixed annuity or pension plans that offer little room for change.

Peace of Mind

An SWP mimics the feel of a salary. Every month, money comes into your bank account - giving you a sense of structure, predictability, and dignity in retirement. You are not dependent on anyone, and your wealth is working for you.

Basically, SIPs build wealth, but SWPs help you enjoy it. And retirement is all about enjoying the life you have worked so hard for.

Take Help from Financial Advisors

So if you are nearing retirement or already retired, consult a well-educated, full-time advisor who uses his experience, expertise, and wisdom to guide and handhold you.

The right mutual funds paired with a well-planned SWP can give you the retirement you deserve - steady income, growth potential, and full control.

After all, the goal is not just to retire, but to retire right.

(The author is a Chartered Accountant and CFA (USA). Financial Advisor. Views personal. He could be reached on 9833133605.)