Kindly tell more about how an SWP works? Please let me know how much withdrawal at a time is possible
-Pooja
Systematic withdrawal plan (SWP) lets you automatically redeem a predefined amount of your mutual fund holdings at regular intervals. SWPs are an ideal way to supplement your monthly cash flow, reinvest periodically in other instruments or meet your periodic payment schedules, without leaving your money idle. For instance, you can plan SWP to match your EMIs, insurance premiums, your children's school fees etc.
An added advantage is that it eliminates the risk of market timing. See it as exactly the opposite of a SIP. You invest through a SIP as it saves you from the hassle of trying to time the market. Similarly, when the markets are up substantially and you are in a dilemma about whether to stay invested for a little longer or to redeem immediately, you can take the middle path of opting for a SWP. This way you will able to gradually exit the market and partially participate in any further upside, while saving yourself from severe losses should the markets correct sharply. The amount of withdrawal can be subject to your requirements, as well as the corpus invested. The minimum withdrawal amount will depend upon the limit set by the asset management company, while the maximum amount will depend on the availability of funds and your requirements.
This article was originally published on February 28, 2007.
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