SWP: Unveiling features of Systematic Withdrawal Plans

Is it wise to depend on a single source of income when cost of living is rapidly increasing? It is important that we ask ourselves this question, because we all aspire to live a life of comfort. Long term financial security comes with early financial planning. Think of it like that tree which if planted today will bear us shade and food in the future for many years to come if properly taken care of.

Many of us are now familiar with the concept of systematic investment plan (SIPs) which is the seed we sow today to reap the potential long-term benefits in the future. But with early and right planning, not only can we make systematic and disciplined investments but can also withdraw the investments in a systematic way. This is called systematic withdrawal plan or SWP facility provided by mutual fund schemes.

What is SWP?

If as an investor you are seeking to generate passive income or looking for a potential source of fund to compensate for pension during retirement or to cover educational expenses of your children or for any other reason, then, SWP can be a convenient and flexible option. SWP allows you to withdraw the gains or sums from your investments at a pre-determined frequency and at a pre-determined amount. However, it works if you have started investing early to help you generate potential gains on your invested amount with the help of power of compounding so that, when the need to withdraw your invested amount arises, you can opt for Systematic Withdrawal Plan to withdraw your invested amount after deciding the amount and frequency of withdrawals, keeping in view the purpose of your withdrawals.

Here are key features of SWP:

• It helps you to redeem pre-determined amount of funds at pre-determined intervals
• Investors can set the amount which they want to withdraw and the frequency at which they want to withdraw.
• If you withdraw the gains on your investments your initial capital stays invested and can keep working for you.
• It can be suitable for investors seeking cash flows to meet expenses.

Since we have mentioned market volatility and its impact on our investment returns, we should also know about the concept of Smart SWP*, a strategic tool offered by select Kotak Mutual Fund schemes.  Here are the key features:

• Smart SWP helps in adjusting the SWP instalments based on the ups and downs of market valuations. This means the investor gets an option to withdraw the amounts as per the different market scenarios.
• It follows the simple concept that when market valuations are high, it enables you to   withdraw higher amount and when market valuations are cheap, it enables you to withdraw less amount. You can understand this better with the illustration below

All in all, Smart SWP can help you take advantage of market movements.

So what are you waiting for? Plant your investment tree today for that potential source of fund in the future. 

 

Disclaimer:

* Smart-Systematic Withdrawal Plan (SSWP) is a facility wherein investors of the Eligible schemes of Kotak Mutual Fund can withdraw a pre-determined amount at defined intervals. The investor needs to provide a Base SSWP amount. Basis this Base amount, the amount for SSWP which will be linked to the percentage of Net Equity Allocation (equity and equity related securities net of hedged positions using derivatives) of Kotak Balanced Advantage Fund (“KBAF”), will be calculated. The below illustration provides for on how SSWP amount shall be calculated.

To view the Net equity allocation of KBAF refer: https://www.kotakmf.com/mutual-funds/hybrid-funds/kotak-balanced-advantage-fund/reg-g. Refer https://www.kotakmf.com/Information/forms-and-downloads for complete and detailed information including list of Eligible schemes.

This material is not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.

Kotak Mahindra Asset Management Company Limited (“KMAMC”)/Kotak Mutual Fund is not guaranteeing or promising, or forecasting any returns. SWP/SSWP does not assure a profit or guarantee protection against loss in a declining/upward market.

Investors may consult their financial advisors and/or tax advisors before making any investment decisions. Investors should read the Scheme information documents carefully before making any investment decision. The past performance may or may not be sustained in future, and is no guarantee of any future results.

Kotak Balanced Advantage Fund

An open ended dynamic asset allocation fund

The above risk-o—meter is based on the scheme portfolio as on 3oth September 2023. An addendum may be issued or updated on the website for new riskometer.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.