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A Systematic Withdrawal Plan, allowing investors to withdraw a fixed amount from their mutual fund scheme at regular intervals, is a flexible investment tool.
What you should understand about SWP and Annuity.(Representative image)
Systematic Withdrawal Plan (SWP) is a facility offered by companies to mutual fund investors, wherein they can withdraw a specific amount from their investment at regular intervals. Annuities, on the other hand, allow investors to assure sums in products offered by life insurance companies that enable a stable and sustained income flow to build a significant enough retirement corpus.
Even after the amount is withdrawn, the SWP model allows the remaining investment in the mutual fund to continue earning returns in the market. It is a flexible option, where investors can choose the withdrawal frequency and amount depending on the changes in the market conditions. In comparison, annuities are less flexible but often preferred by those seeking fixed and secure retirement funds. Here’s what you need to understand about both SWP and Annuity before choosing one.
Key Features of SWP in Mutual Fund and Annuity with Insurance Companies
Systematic Withdrawal Plan
Flexibility: A Systematic Withdrawal Plan, allowing investors to withdraw a fixed amount from their mutual fund scheme at regular intervals, is a flexible investment tool. Here, investors can tailor the frequency and sum of withdrawals as per their immediate or future needs.
Market Participation: SWP offers potential growth on investment in stable market conditions.
Customisation: The withdrawal facility in a mutual fund gives investors control over their investment portfolio, including the chance to make adjustments as per their requirements.
Tax Efficiency: An investor can structure their withdrawals in the SWP model in such a way as to avoid heavy tax liabilities and get better returns.
Market Risk: Despite all the benefits, however, the SWP is not short of risk to withdrawals as investment value can fluctuate with market conditions. Investors may also need active management and understanding of the market to optimise their withdrawals over time.
Annuities
Guaranteed Income: The annuities offered by insurance companies for retiring individuals provide fixed, regular and guaranteed payments, which can be availed of for life or a pre-described period in the scheme.
Protection Against Inflation: Some annuities are capable of preserving the purchasing power of the retiring individual and their income by adjusting financial values to account for inflation in a given market.
Minimal Management: Since the insurance company handles all the payouts made, annuities require minimal management upon purchasing.
Lower Growth Potential: While accessible and easy to manage, annuities come with lower growth potential than investment tools in the financial market.
Inflexibility: An investor can’t alter the terms of the annuity scheme or access the lump sum without penalties. They also come with various fees involved, which may reduce the value of the investment.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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