Although investment is required, it should be goal-oriented. A person is more likely to reach their financial objectives if they have a clear investment strategy.
Similarly, there's a good chance you'll hit your target when you use a systematic investment plan (SIP) to invest in mutual funds and a sound investment strategy. But what if, at the time of your withdrawal or at a time when you had planned to reach your financial goal, the stock market is down? It will also hurt your mutual funds.
Returns Affected by the market crash
Recovering from a down market in stocks could take a year or longer.
What happens if you are in dire need of cash while the market is declining?
There's a chance you won't reach your financial objective, and your mutual fund returns will decrease.
If an investor had invested in mutual funds that yielded 12 per cent returns for ten years and you planned to withdraw the funds within the upcoming two years for some personal monetary reasons.
However, ten years after you made the investment, the stock market declines, and the returns on your mutual funds for the following years become negative.
Systematic withdrawal of investments (SWP) can be helpful in such a situation.
What is a SWP (Systematic Withdrawal Plan)?
A systematic withdrawal plan, or SWP, functions in the exact opposite way as a SIP. Individuals may withdraw set amounts from mutual fund schemes in accordance with the SWP strategy.
The investor first buys units of a mutual fund scheme, which is typically low-risk and consists primarily of liquid funds, in order to implement the SWP strategy.
They then provide directives to redeem a predetermined sum from these schemes on a regular basis. According to the guidelines, SWP can be set weekly, monthly, or quarterly. Retirees who require a reliable source of income typically favor this strategy.
