A systematic withdrawal plan (SWP) is a wonderful feature in mutual funds which helps you to plan regular cash flow for a long period of time and withdrawals can be planned based on one’s need.
This is an important tool to be considered for retirees who require regular monthly cash flow and they can do lump sum investment in a fund (which can be equity-oriented or a combination of hybrid and start withdrawing on a monthly/quarterly/half-yearly/annual basis depending on their needs.
Withdrawal can be done after a year in an equity-oriented fund so as to avoid short term capital gain tax and the withdrawal can be 6% in a year so as to ensure that the capital keeps appreciating and only the appreciation part is being withdrawn in spite of short term volatility.
With the added advantage of a 1 lakh exemption on capital gain, the tax liability is much lesser compared to other options as Mutual fund withdrawal is considered in FIFO (first in first out) method. This feature also aids rupee cost averaging, when the NAV is higher (lesser units are withdrawn) and when NAV is lower (higher units are withdrawn).
An important point to consider for the long term is that as India is a growing economy with companies earning growth visible in the long run, capital appreciation is very much possible and this will aid in beating inflation and also leave behind a legacy corpus in your later years.
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