After investing for many years, there comes a time to start utilizing your investments. This is where ‘Systematic Withdrawal Plans’ (SWP) come in.
Systematic Investment plan (SIP) is when you invest in a systematic way in units of Mutual Funds. So you invest the same amount of money every month on fixed dates. You are allotted units as per the rate (called Net Asset Value or NAV) on that particular day.
So In short, SIP is investing/adding units of mutual funds.
And SWP is withdrawing the money systematically.
But what is the point of just withdrawing what one has invested. Why not sell all the units and get it all in one go !?
Now lets understand this by putting ourselves in the investor’s place.
Any mutual fund gives an average return of 10-15% in the long term. Some have even been giving returns of 20% plus. This is obviously better than returns of a fixed deposit which is currently between 6-7%.
So if the investor withdraws units worth 6-7%, he still gains 3-5% on his overall principal. So the capital is increasing and the investor is getting his regular returns.
This means he gets a return equal/better than an FD and his principal amount is also increasing.
But what if the stock market crashes and the valuation of mutual funds reduces? Many times stock markets can be weak for a long duration of time.
The solution to this problem is to chose mutual funds which are more stable and less risky. How do we decide that?
Balanced mutual funds are the best for this.
What do Balanced funds do? They allocate your money in the stock market and Government bonds/debt depending on the market condition.
So they could increase equity investments when markets are down and decrease them when markets are going up.
Balanced mutual funds will invest 40-50% of your funds in equity and 40-50% in Government bonds/debt and keep changing according to market conditions. So returns of balanced funds will be less risky and stable. They are comparatively less risky compared to Equity based mutual funds though returns could be lower, they will be safer and less volatile.
Most of the top companies have Balanced mutual funds.
HDFC, ICICI, Aditya Birla, LIC, Edelweiss, L&T, Nippon etc. have Balanced funds.
Take your pick.