Answer Book question
A Systematic Withdrawal Plan is the reverse of an SIP: a fixed amount is redeemed from a fund into your bank account every month. It is one way to turn investments into a monthly income in retirement. Unlike FD interest, you are selling units, so the balance depends on returns and withdrawal rate.
A Systematic Withdrawal Plan is the reverse of an SIP: a fixed amount is redeemed from a fund into your bank account every month. It is one way to turn investments into a monthly income in retirement. Unlike FD interest, you are selling units, so the balance depends on returns and withdrawal rate.
A retired bank clerk has ₹30 lakh in a conservative hybrid fund. An SWP of ₹15,000 a month covers the gap between pension and expenses. If the fund earns around 7 percent, the corpus roughly holds. If the market has a bad run, she may need to reduce the withdrawal for a while.
SWP gives flexibility and, under current rules, often better tax treatment than interest because each withdrawal is part capital. The risk is "sequence of returns": heavy withdrawals during a fall deplete the corpus faster. A sustainable rate is usually below the expected return.
Withdrawal rate as a percentage of corpus Fund risk category. SWP from pure equity is risky A two-year cash buffer outside the fund for bad years Current tax treatment
Setting the withdrawal at the return you hope for, not the return you can rely on.
For parents in Kerala whose children want to set up a monthly income from a lump sum, SWP from a conservative fund plus an FD ladder is a common structure. Keep the first two years' needs in FDs.
₹30 lakh, 6 percent withdrawal (₹15,000/month), fund returns 7 percent: corpus roughly stable. Same withdrawal, fund returns 3 percent for three years: corpus falls to around ₹27 lakh. survivable with a buffer.
An SWP from an equity fund at 10 percent withdrawal will likely exhaust the corpus in a bad decade.
Set the withdrawal below expected return Hold two years' needs in FDs Review annually
How do I turn investments into monthly income? Annuity or SWP? What is an STP?
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