What is RWP?
Principal Mutual Fund’s ‘Regular Withdrawal Plan (RWP)’ is one of the smart feature in the industry, which can help generate regular cash flows with a chance of capital appreciation for investors. Let me provide our perspective and thinking behind this feature.
At Principal Mutual Fund, we endeavor to innovate solutions for various needs of our investors and thus help them plan for their financial goals in hassles-free manner. RWP is one such initiative in this direction because it allows to plan regular cash flows in a tax efficient way* by just one time registration.
* Short Term and Long Term Capital Gains tax applicable
How is it different from conventional options like FDs & annuity plans?
Amidst the conventional options, the RWP stands out of the crowd with additional features. Additionally, RWP provides the flexibility of choosing the fund and withdrawal amount with hassle-free experience through one time registration. Following table illustrates advantages of RWP over other conventional options:
*For investments made on or after June 15, 2017 Exit load is Nil on redemption on or before one year from the date of allotment for redemptions/ switch outs upto 24% of of units allotted in Principal Balanced Fund & Principal Smart Equity Fund. In , Principal Equity Savings Fund Exit load is NIL w.e.f Aug 2, 2017 . Relevant Exit loads shall be applicable thereafter. Please check the load structure applicable at the time of investment and enrolling under the facility. ** Short Term and Long Term Capital Gains tax applicable. %Investments in FDs are insured by Deposit Insurance and Credit Guarantee Corporation (DICGC) upto a maximum of Rs. 1,00,000 (Rupees one lakh) for both principal and interest amount. FD investments provides interest income.
Now with revised exit load structure in three of our funds, Principal Equity Savings Fund – NIL (w.e.f Aug 2, 2017) and in Principal Smart Equity Fund & Principal Balanced Fund (24% of their initial investment annually without any exit load w.e.f June 15, 2017), advisors could plan efficiently and take advantage of RWP by getting their clients to invest according to their risk profile and expected returns.
How can advisors / investors use RWP?
It’s Simple. This option is best suited when advisors clients have lumpsum money now and want regular & steady monthly cash flows in future. There are many situations in which RWP could be used, following are few examples where advisors could efficiently use RWP for regular cash flows:
- Client has taken VRS and need regular cash flows to take care of monthly expenses
- Clients who do not have Regular Pension could opt for this option, this could act as immediate annuity plan and help generate regular cash flows
- Advisors could also help their clients to generate regular cash flows for financial responsibilities such as supporting aged parents
- Clients who are in profession / business with unpredictable cash flows and make ad-hoc withdrawals from business, could use this option to generate regular cash flows to meet monthly expenses
- Regular withdrawals could be used to service monthly EMIs, while some portion of your investment is still invested in markets and has good prospects to grow
Can you share an example on how RWP works?
It’s simple, let’s say if an investor would have invested Rs.1 crore lump sum investment on December 1, 2011 in Principal Smart Equity Fund and opted for RWP with a monthly regular withdrawal of Rs.1 lakh.
Today, the value of investment would have grown to Rs.1.12 crore in addition to the total monthly withdrawals amounting to Rs.67 lakh! This means that returns generated are at 14.32% on compounded annualized basis from December 1, 2011 till July 31, 2017.
Past Performance may or may not sustained in future. Data as on 31st July, 2017. This example is for illustration purpose only and investors are advised to consult their financial advisor before making an investment decision. The calculation is based on Principal Smart Equity Fund – Growth Lumpsum Investment date – 1/12/2011 | RWP dates 1st of every month between – 1-Jan-2012 to 31-July-2017
What kind of marketing collaterals are available for advisors?
To help advisors explain this feature to their clients, we have done a short video which the advisors could share with their clients, this video could be customized with details of advisors. In addition to this, we have also done a brochure which explains benefits and feature of RWP. This too could be co-branded with details of distributors. For co-branded collaterals, advisors could contact PMF representative.
Returns of schemes managed by fund manager PVK Mohan (As on July 31, 2017)
Mutual Fund investments are subject to market risks, read all scheme related documents carefully