Retirement is a significant life transition, especially when it comes to financial planning. For many senior citizens, ensuring a steady income post-retirement is essential for a comfortable lifestyle. This is where the Systematic Withdrawal Plan (SWP) in mutual funds can play a pivotal role. An SWP allows retirees to receive a fixed monthly income while potentially preserving their principal investment. Let’s dive deeper into how SWP can be a reliable source of income, what makes it beneficial for seniors, and why it could be a preferable choice over other income options.
An SWP, or Systematic Withdrawal Plan, is a mutual fund feature that enables investors to withdraw a fixed amount regularly from their mutual fund investments. Unlike the Systematic Investment Plan (SIP), which is about investing in small chunks regularly, SWP works in reverse, allowing investors to redeem their investments periodically.
For senior citizens, SWP can be a lifesaver by offering a steady cash flow, similar to a pension. This approach is especially useful for retirees who rely on this income to cover monthly expenses without worrying about the market’s volatility.
For a senior citizen aiming to receive Rs 1 lakh per month over 20 years, with the possibility of getting back the entire investment, selecting the right fund is key. This means choosing a fund that offers a steady rate of return — typically, a balanced or hybrid mutual fund fits the bill. These funds are designed to manage risks while striving for moderate growth, making them suitable for ensuring a stable income during retirement.
Here’s how it could work:
Scheme Name | Current NAV in Rs (as of Nov 04, 2024) | AUM (Rs in Crore) | TER (%) | 1 Year Returns (%) | 5 Years Returns (%) |
HDFC Balanced Advantage Fund | 499.93 | 96,535.50 | 1.35 | 30.74 | 19.95 |
Baroda BNP Paribas Balanced Advantage Fund | 23.14 | 4,186.97 | 1.89 | 24.57 | 15.78 |
Edelweiss Balanced Advantage Fund | 49.24 | 12,689.91 | 1.64 | 22.9 | 14.86 |
Sundaram Balanced Advantage Fund | 34.12 | 1,591.20 | 2.04 | 20.45 | 13.68 |
Tata Balanced Advantage Fund | 19.92 | 10,453 | 1.67 | 19.16 | 13.2 |
Note: The above-mentioned funds are from Dynamic Asset Allocation. These are a type of balanced fund or hybrid fund. Most of the funds in this category are invested and spread across various sectors, including equity funds, real estate, stocks, and bonds.
For decades, Fixed Deposits (FDs) have been the go-to investment for retirees. However, with declining interest rates, they may no longer be sufficient for inflation-adjusted income. SWPs, on the other hand, can potentially offer higher returns with flexibility in managing withdrawals. Moreover, since only the gains are taxed, SWPs are often more tax-efficient than FDs, making them a preferred choice for retirees looking to maximize post-tax income.
SWPs can be a reliable income solution for senior citizens, providing them with financial independence during retirement. The ability to withdraw a fixed amount each month, coupled with tax efficiency and potential capital preservation, makes SWP an ideal choice for those looking to maintain their lifestyle post-retirement.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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