Can SWP with liquid funds help in creating a regular income stream?
A Systematic Withdrawal Plan (SWP) allows investors to withdraw a fixed amount periodically from their liquid fund investment. SWP in mutual funds offers senior citizens and retirees a means to structure their liquid portfolio to provide a regular inflow of funds. In addition, it enables corporations to deploy a portion of surplus funds every month to meet recurring payables. Therefore, by defining the withdrawal amount and frequency, SWP provides convenience and flexibility.
Read on to learn more about how to use SWP for liquid fund.
- Table of contents
- How SWP works in liquid fund?
- Things to remember while setting up SWP
- How SWPs can be used with liquid funds?
- How to setup SWP from a liquid fund?
- Using SWP helps retired investors meet regular expenses
- SWP: An all-weather investment strategy
- FAQ
How SWP works in liquid fund?
A Systematic Withdrawal Plan or SWP allows investors to withdraw a fixed amount periodically from their investment in a liquid fund. Investors can choose a monthly, quarterly, half-yearly or yearly withdrawal frequency. The fixed amount is then automatically redeemed from the fund and credited to the investor's bank account on the selected withdrawal date in each period.
SWP in liquid funds can help investors meet regular cash needs in a planned manner without having to manually redeem units from their investment each time. It also allows senior citizens and retirees to structure their liquid fund investments to provide periodic withdrawals as a source of regular income. Corporates can also use SWP to deploy a portion of their surplus liquid funds each month/quarter to meet recurring payables.
Things to remember while setting up SWP
When setting up an SWP, the investor specifies the desired withdrawal amount, frequency and start date. The fund house will then redeem the necessary number of units from the investor's account on each withdrawal date to pay out the requested amount. The number of units redeemed keeps changing depending on the net asset value of the fund on the date of withdrawal.
This way, SWP provides flexibility and convenience to investors as they get access to a portion of their capital at regular intervals without having to manually sell units each time. However, if the market value of the investment falls below the SWP instalment, the SWP may fail or must be discontinued.
How SWPs can be used with liquid funds?
Liquid funds are ideal for SWPs as they invest in short term debt instruments with high liquidity and limited risk. Some key benefits of using SWP with liquid funds include:
Liquidity:Liquid funds allow easy entry and exit, (subject to exit load) due to investments in cash and cash equivalent instruments. This ensures sufficient funds are available for SWP withdrawals.
Regular income: SWPs help create a predictable monthly/quarterly income stream from one's liquid fund investment corpus.
Limited risk: As liquid funds invest in debt of high-quality companies with maturity of 91 days, the risk is relatively lower than many other debt funds.
No reliance on bank deposits: With lower FD rates, SWP from liquid funds offer a potentially reasonable return alternative for regular income needs.
How to setup SWP from a liquid fund?
To setup an SWP from a liquid fund, investors need to fill out an SWP form available on AMC websites or distributor platforms. The form requires details including:
- Folio number from which SWP is to be facilitated.
- Frequency of withdrawal (monthly, quarterly etc.)
- Withdrawal amount.
- Withdrawal date.
On the selected date every month/quarter, the selected amount is redeemed by the fund house and credited to the registered bank account. The minimum withdrawal amount is Rs. 500.
Using SWP helps retired investors meet regular expenses
For retired individuals, SWP is a very useful tool to create a regular monthly inflow of funds from existing liquid fund investments. The consistent monthly income can be used towards meeting recurring expenses in a tax efficient manner. It also ensures the remaining portfolio amount continues to be invested and generates potential returns to fulfill long term goals through systematic withdrawals. The relatively low/low-to-moderate risk nature of liquid funds makes SWPs a suitable strategy for retired senior citizens seeking a regular income.
SWP: An all-weather investment strategy
Under volatile market conditions, SWP can provide potential stability as the withdrawal is facilitated regardless of market movements on the pre-selected date by redeeming units worth the withdrawal amount. This, however, is subject to the remaining invested amount being over and above the SWP instalment. During market downturns, more units are redeemed and in upturns, fewer units are redeemed for the same withdrawal amount. Over the long term, it averages out the number of units sold for each withdrawal, thus potentially ensuring a regular income without investors having to time the market.
conclusion
Using SWP for systematic withdrawals from liquid fund investments can be an effective way for investors to generate a potentially regular income stream. It helps create a predictable monthly/quarterly stipend from one's portfolio with low risk and high liquidity. Investors can consider the Bajaj Finserv Liquid Fund to generate a regular income stream through SWP and aim to maximise their return potential. For a detailed scheme information, click here.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice