From Burdens to Freedom:

There comes a stage in everyone’s life when they start seeing things from a different perspective & realize that there is much more to experience than what they are aware of. I had a similar experience during my late 20’s.

Before being a QPFP (Qualified Personal Finance Professional) I always wondered how one can be prepared for the future. Till what age will your body & mind support you to live a life which is free from all burdens of earning your living?

I realized that this is the point where an alternate source of income which is completely disciplined & automated is required. This was the point when I had to start seeing things from a different perspective.

During my Post Graduation days, I started reading on Passive Income & how it plays a key role in securing one’s future. In the era when Mutual funds was still something new to the ears, and the fear of losing money had kept most people away from investing in equity markets, I was introduced to terms like Financial Freedom & SWP.

Financial freedom is a life goal that everyone aspires to achieve, but the journey can feel long and exhausting. This is where a Systematic Withdrawal Plan (SWP) comes to the rescue. SWP is a financial tool that gives a steady flow of income from your investments, allowing you to experience a comfortable, relaxing & burden-free life. In this blog, we will run over how SWP works, the many solutions it offers, and how it is the key to generating passive income.

Decoding Systematic Withdrawal Plan (SWP)

A Systematic Withdrawal Plan (SWP) is a tool through which one can withdraw, from their investment, a fixed or variable amount from their investment, usually mutual funds, at regular intervals. Unlike the traditional style of waiting until retirement to get passive income, SWP gives you access to your funds regularly while still growing your investment.

SWP allows you to select the amount and frequency of withdrawals, whether it’s monthly, quarterly, or annually, depending on your financial needs. The money is gradually debited from your invested corpus, with the remaining investment continuing to compound. It's actually a great way to maintain liquidity of your investment while ensuring it keeps generating returns.

So How Does SWP exactly Work?

SWP is a very simple process:

Invest in a suitable mutual fund: To start an SWP, your first step is to invest a lump sum corpus in a mutual fund (consult a Personal Finance Professional), alternatively you can plan it through SIP over a period of time as Equity mutual funds are usually opted for long-term growth, on the other hand debt funds offer better stability to the investment. A combination of both can provide balance.

Set a withdrawal schedule: Based on your financial needs, you can set up a regular withdrawal schedule, such as monthly or quarterly. You also get to decide the amount you want to withdraw at each interval.

Regular income: Once the plan is in place, you start receiving a steady income. This gives you control over the cash flow from your investments while ensuring that the remaining money continues to generate returns.

Flexible and customizable: You can adjust the withdrawal amount or stop the SWP altogether if your financial situation changes, providing much-needed flexibility.

The many Solutions that SWP Offers:

SWP is more than just a mechanism to withdraw funds—it offers innumerable solutions that cater to different types of financial needs and goals. Let’s explore some of the key benefits and solutions that an SWP offers:

Financial Freedom: SWP can conveniently help you be financially free by providing a stable & predictable income. Whether you aim for an early retirement or, income supplements, or simply achieve financial stability without depending on anyone else, SWP provides a solution that keeps your wealth on a growth mode while simultaneously generating regular income.

A source for Passive Income: SWP generates a regular source of income, hence making it ideal option for retirees, those looking to get an extra cream apart from their salary or even individuals who seek financial independence. By systematically withdrawing from your accumulated corpus, you receive consistent payouts in a disciplined manner without having to worry about running out of funds.

Cushion during Market Volatility: Market fluctuations (which is its nature) can sometimes affect your investments, especially in equity markets. SWP helps minimize this risk by enabling you to take regular withdrawals regardless of market movements. Even during the times of market drawdowns, you can withdraw from your corpus without having to sell your entire portfolio at a loss.

Safeguarding your Capital: Unlike withdrawing the total corpus all at once, SWP helps you to Preserve your principal investment while withdrawing fixed income periodically. This helps in guarding the bulk of your capital, ensuring it to grow or remain secure for future use.

Tax Efficient: One of the major advantages (I would call a game changer) of SWP is that it is tax efficient. Unlike fixed deposits or recurring deposits where the total interest portion is 100% taxable, SWP withdrawals are part capital and part gains which means you pay tax (marginal) only on the capital gains portion hence significantly reducing your tax liability.

Customized as per your Needs: SWP provides customization that many other investment withdrawal plans lack. You can get it tailor made as per your financial goals by choosing the amount and frequency of income. You also have the convenience to increase, decrease, or completely stop withdrawals, if your financial situation changes.

Conclusion:

A SWP is a powerful tool that not only provide a regular income but assist you in making your life a whole lot better with its innumerable benefits & ease of use. But be aware that an ideal SWP is not easy to set up so professional assistance is definitely required. I would continue with further benefits of SWP in my 2nd blog where you can understand how SWP is the Master key to your passive income.

Stay tuned to know more, 2nd blog is on the way!