Hello Readers! 

Retirement, whenever people have this term in their mind, they land into the world of mixed reactions. If we take a good observation on the topic “How much are your prepared for your retirement?”, I assume, we may find only around 10% of people with the answer, I am adequately prepared for my second winnings. Yes, this is reality, and more than that, a matter to be seriously looked upon.

Most people start getting sleepless nights on the very thought of how we will manage our expenses for the remaining 20-30 years, when there will be low regular income or may it be nil also.

People are advised to start planning for their retirement, right from the year they start earning, still, people postpone their retirement planning for the last moment. Most people start planning for retirement very late in life. Also, many of us have no clue how much corpus is going to be required to fund the biggest goal of our life.

Well, a big thank you to new technologies today, we have many resources available online to give us a broad idea on how to plan for retirement. Basically, when we have the idea of how much corpus we have to create in how much time, the last thing is to choose, where to start investing for the same.

Retirement Investment Options! 

There are a number of options that people prefer to invest in for their retirement planning. There are two phases of retirement planning, the first one is accumulation and the second one is distribution. After talking to a number of investors of different age groups it was concluded that the following options are most ubiquitous for building retirement corpus – employees' provident fund (EPF), public provident fund (PPF), national pension scheme (NPS), bank fixed deposits (FDs), mutual funds (MFs), equities, etc.

What Do People Prefer For Distribution Phase? 

For the distribution phase of their retirement, people have mixed preferences. People use a combination of the following to generate a regular monthly income – pension from the employer, interest from bank FDs, dividend income from equities / mutual funds, rentals, proceeds from endowment/pension policies, etc.

However, in the last some years or some months, the concept of the Systematic Withdrawal Plan, gained popularity. The way it is favored by investors for the distribution phase for their retirement planning, this method can prove to be a pathbreaking idea whose time has come.

Investors are favoring this idea just like they welcomed the systematic investment plan (SIP), five years back, it can be predicted that just like SIP, SWP will become an even bigger idea in the next ten years.

An SWP offers greater flexibility in terms of cashflows, and it is highly tax-efficient too. But not too many people in our country are aware of this concept.

A Systematic Withdrawal Plan (SWP), is a kind of redemption facility, that allows its investors, to withdraw a fixed amount from your mutual fund at regular periodic intervals, the periodic intervals can be either monthly, quarterly, or yearly, as per the investors choice and requirements. SWP withdrawals are somewhat different from Lump-sum withdrawals.

Monthly withdrawals from FD’s are similar to, but in an FD, since we only withdraw the monthly interest that we earn, our principal remains intact. While in SWP from a mutual fund, if your monthly withdrawal rate is less than the rate of return you earn, you will end up having a much bigger portfolio in the long term and vice versa too.

There are a number of benefits of availing SWP from the mutual fund for withdrawals process, some of which I am mentioning here:

• SWP can be done from any Mutual Funds - Be it Debt, Hybrid or Equity
• It can be started from any day. We can choose to invest the lump sum corpus and start SWP from the next day itself.
• You can choose any amount to withdraw from SWP and can also change the amount any number of times in the future.
• It is much more tax-efficient compared to monthly dividends received from Mutual funds for people who are in the highest tax bracket.
• It is entirely flexible. You can withdraw a lump-sum amount also at any point in time.

Well, there are some of the limiting points of SWP also, like there is no guarantee on returns, and this is because mutual fund investment is subject to market risk. Returns are market-linked; the investor has to choose the fund according to her risk profile. In case if the market trend low for a long time, chances are there that your corpus might not last long. In that sense going for SWP is not reasonable.

Well, you can plan your withdrawals in another beneficial way for your retirement. Keep withdrawing from your debt fund for the first three years and along with that keep replenishing your debt fund by booking profits from the equity fund.

For any kind of query regarding financial planning you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee of future returns).