Need regular income? Try systematic withdrawal plan of mutual funds. Here’s how it works | Simply Save

For investors who want regular income, fixed-income investments like bank fixed deposits, non-convertible debentures and small-saving schemes are usually the preferred instruments. But did you know that even mutual funds help in giving you a regular income?

While systematic investment plans (SIPs) bring in a disciplined approach and harness the power of compounding, systematic withdrawal plans (SWPs) play a crucial role in retirement planning, income management and ensure peace of mind for investors seeking to generate income from their investment portfolios.

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With an SWP, investors have the freedom to determine the withdrawal amount, frequency, and duration tailored to their requirements. SWP is not only beneficial for retirees but also for individuals seeking regular income.

Efficiently using SWPs involves careful planning and consideration of various factors such as financial goals, risk tolerance, investment strategy, and tax implications.

Moneycontrol talked to Akhil Chaturvedi, Chief Business Officer, Motilal Oswal Asset Management Company, about how to setup an SWP, how much should one withdraw and risks associated with systematic withdrawal plans.

Here are a few points that Chaturvedi highlighted.

- SWPs generally suit retirees or those who are nearing retirement as well people who have generated big corpus in their those who, you know, early in days have, you know, created a big corpus.

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- Those who are in the accumulation phase probably would not want to go in for a systematic withdrawal plan, because then it will disturb the compounding journey.

- NPS and mutual funds both put together make a good choice for SWPs.

- In an SWP, an individual needs to decide on a fixed amount or a percentage of the corpus that needs to be withdrawn.

- For example, if one has remain invested through different market cycles, they can expect 13-14 percent gross returns on a long-term basis. And if you withdraw 8-9 percent on a yearly basis from the overall corpus, you still have the potential to sustain your capital plus also grow your capital.

- One needs to just have the discipline of staying put, keep taking their withdrawals as long as the amount or percentage is reasonable.

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- For SWPs one can go for aggressive hybrid funds with 65 percent equity 35 percent debt or balanced advantage funds, which are typically 60:40 in equity to debt. Aggressive investors can for pure equity funds with more than 10 years’ investment horizon.

- Risks are not associated per se with a systematic withdrawal plan, but with the underlying Fund, in which you have invested.