New Delhi. In today’s time, people want to save, but are unable to understand the right way. Almost everyone has heard about Systematic Investment Plan i.e. SIP, but still very few people know about Systematic Withdrawal Plan i.e. SWP. The interesting thing is that SIP and SWP together can create a strong financial security blanket, which not only increases your earnings but also provides regular income when needed. Especially during retirement or at such a time in life when income decreases.
The simple thing is that SIP is a method in which you invest a little money every month and gradually a big fund is created. A Balasubramaniam, Managing Director and CEO of Aditya Birla Sun Life AMC, told our associate website CNBC TV18 that the biggest financial pressure on people comes from expenses which they have not planned. These include sudden medical expenses, increasing education fees, sudden trips or changes in lifestyle. Such unplanned expenses sometimes exceed our monthly budget.
So how does SWP help you?
This is where SWP helps you. When you have built a large fund through SIP over the years, a fixed amount can be withdrawn every month from the same fund through SWP. This method is especially useful after retirement, when regular salary stops. This keeps you getting a steady income and the remaining money remains invested in the market, which also keeps increasing with time.
Equity based mutual funds have been giving good returns in the long run. If the amount withdrawn from SWP is kept less than the potential return of the portfolio, your principal amount does not reduce much and your income also remains regular. That means, at the same time, money increases and is also available when needed. This is the real advantage of SIP-SWP.
two sides of the same coin
According to A Balasubramaniam, there is no need to consider SIP and SWP as two different things. Together these two make a life-stage financial plan. The period from 25 to 60 years is usually for earning and investing. After that, when the income stops, regular income can be taken from the same deposited capital through SWP. Even if one starts in one’s 40s or 50s, a good plan can be made by adopting SWP after a SIP period of 8–10 years.
This method is very effective not only for retirement, but also for children’s education, healthcare expenses, home repairs, or lifestyle needs. By doing SIP with discipline at the time of earning, the money keeps growing and when needed, it can be easily withdrawn through SWP. In this way, SIP and SWP together create a strong financial shield, which is useful at every turn of life.
