The last ten years or so, especially the post covid era, have been witnessing a big jump in mutual fund investments, more so in SIPs. Gradually, mutual fund SIPs have been inculcating the habit of investing in people. But what about another facility that mutual funds offer, the opposite of SIP, i.e. SWP. What are SWPs?

Understanding SWPs (Systematic Withdrawal Plans)

Systematic withdrawal plans (SWP) can be seen as the opposite of Systematic Investment Plans (SIPs). SWP is a facility aimed to help investors get regular and fixed withdrawals from a mutual fund scheme in which they had invested a corpus. You decide on the frequency and amount of withdrawal. You could also decide to simply take back the gains on your investment, leaving your invested capital whole. Units from your portfolio are sold at the scheduled date, and the amount gets transferred to your bank account.

Why use SWPs?

SWPS can best be used in the following effective ways:

• SWPs can be used for establishing a consistent secondary income source. These days, one more source of income is required to help with the growing cost of living. One excellent way to consistently generate secondary income is to invest in mutual funds and withdraw using an SWP.

• Whether or not you have a pension plan, you can build a corpus roughly five years before retirement and invest it in a mutual fund based on your risk tolerance. Retiring allows you to start an SWP and design your own pension.
• They can also help protect your capital. You can consider initially investing in Arbitrage Mutual Fund Schemes if you are highly averse to accepting any risk with your investment. These systems guarantee almost zero risk and guaranteed returns. Choose the dividend option and use a SIP to invest the dividend into a debt plan. You can start an SWP and get consistent income without running capital risk at last.

What are SWP calculators?

The best swp calculator is a simulation displaying your mutual fund investment monthly withdrawals. It displays the mutual fund investment's overall value following withdrawal. The methodical withdrawal approach might help you to obtain a consistent income in retirement. Enter the total investment amount, withdrawal per month, expected annual rate of return, and investment length in a formula box of the SWP Calculator. The SWP Calculator provides your mutual fund investments' future value.

You can yourself plan the mutual fund SWPs for regular income inflow, especially by utilizing the best swp calculator tool, to get a monthly inflow from your accumulated corpus, as per your financial requirements.

Moreover, just like SIP calculators, you can utilize SWP calculators to understand how much you would get as monthly inflow over a period of time when you begin withdrawing from your invested corpus.

How do SWP calculators work?

The best swp calculator shows you a clear picture of the regular inflow of income that you can expect throughout your chosen tenure if you begin withdrawing the invested amount. The following formula is used:

A = PMT ((1+r/n)^nt-1)/(r/n)), with A being your investment’s final value, PMT being each period’s payment amount, n being number of period for which the compounding would occur, and t being the tenure of investment.

Do mutual fund investors need life insurance cover?

Certainly yes. Even if you have invested a big corpus in mutual funds and/or in other investment avenues such as PPF or gold or stocks, having an adequate life cover for your family’s financial future is a must. The life insurance cover’s sum assured would act as a replacement income to help your family handle their liabilities and other expenses in case of your unfortunate and untimely demise.

The big benefits that having life insurance are the following:

1. Securing family's financial stability for future

Being self-employed or salaried, you need to give your family a financial cushion for future. If unfortunately you die too soon, your family could find themselves in financial trouble. With life insurance, your loved ones can cover expenses, EMIs etc.

2. Availing income tax advantages

Under Section 80C of the income tax act, the premium you pay for term insurance is qualified to be claimed as tax deduction upto Rs 1.5 lakh a year. The death proceeds the term insurance plan nominees get upon the policyholder's death tax free, i.e. they are not subject to taxes.

3. Add-on riders to boost coverage

Besides the basic life insurance cover under term insurance, you can also boost your overall coverage by including add-on riders, which are added benefits, such as accident insurance, critical illness cover, etc.

4. Death benefit to nominees

If you, i.e. the policyholder dies during the policy term, the tax-free payout to the nominee/beneficiary is termed as the death benefit. This will enable your family to remain stress-free when managing financial obligations including children's education, monthly expenses, EMI repayment, etc. This is one of the key features of a life insurance policy, as it gives your loved ones financial stability while you are not there anymore to look after them financially.

5. It gives you peace of mind

Knowing that you have adequately covered your family’s financial future through life insurance cover you can certainly live with peace of mind. In the case of your unfortunate demise, especially if you are the sole breadwinner, the assured sum would at least help tide over the financial obligations, which would thus not leave your family’s financial future in jeopardy. So make sure you buy life insurance for your loved ones as soon as possible, even if you are in your 20s. Do not wait for your 30s or 40s to buy it, as the premium gets higher and higher as you age older. Depending on your number of dependents, like spouse, children, parents,etc, choose an adequate sum as cover, ideally at least 10 to 15 times your annual income. So if you earn Rs 10 lakhs a year, your life cover amount should be at least Rs 1-1.5 crore.

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