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What is the right approach to setting up a systematic withdrawal plan (SWP)?

Dhirendra Kumar highlights the fundamentals of setting up an SWP

What is an SWP and when should one start it? Also, when should one redeem investments from a fund?
- Ratnagar

Systematic withdrawal plan (SWP) is simply the opposite of systematic investment plan (SIP). In an SIP, you invest your money and over a period of time, it gets accumulated to a certain amount. Whenever you are in need of the money, you can start an SWP to redeem your money methodically

You can start an SWP in any of the following situations - 1. if you need to withdraw your complete investments then, set up an SWP four-six months before your goal completion to reduce your dependence on the market or 2. if you wish to withdraw a proportion of your investments as income on specified intervals, then you can also opt for SWP.

Many people prefer the dividend option to supplement income, which is quite an inefficient way of income derivation because of dividend distribution tax (DDT). Besides, investors receive dividends as per the fund house's wishes. However, they can easily start an SWP as per their requirements.

To answer your second question, redemption from a fund completely depends on you. Having said that, if the chosen fund is falling short of your initial expectation, then it is better to redeem your investments from that fund and invest in some other fund.