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Tutorials SWP: A tool for different life-stage needs

SWP: A tool for different life-stage needs

Recommend a SWP for each of the client’s three life-stages
Shreeta Rege Jun 4, 2018

SWP (systematic withdrawal plan) is a mutual fund facility, which enables investors to withdraw an amount from their investments periodically. The facility came into limelight when the finance minister levied DDT (dividend distribution tax) on equity schemes in the 2018 budget. Post the announcement there has been an increased focus on SWP as a retirement planning solution. However, by customising SWP for your client’ financial needs, you can achieve much more than retirement planning.

Let us explore the potential of SWP as a financial planning tool by taking example of Raj a young boy of 12 years.

  • Student – SWP gives pocket money

Would you like to establish a relationship with second-generation clients? Generally, you may think of approaching your clients’ kids when they start earning. At times that becomes too late. A more opportune time to on-board them is when they are young and SWP shows the way to do that.

Raj’s parents (your clients) had been investing in a mutual fund scheme in Raj’s name since the day he was born. When Raj was 12, his family decided to give him monthly pocket money to help him learn how to manage money. Hearing about this you recommended that Raj’s father should start an SWP from Raj’s account. The SWP amount would be his pocket money as this will get Raj interested in investing. In addition, it will help you retain Raj as a client when he starts earning.

  • Working professional – SWP to support your parents

A few years later, as Raj has started working, he wanted to give a portion of his salary to his retired parents. Though his parents did not really need it, not wanting to break Raj’s heart they agreed. In this scenario, you can ask Raj to start an SWP wherein the amount withdrawn is directly transferred to his parents’ account. Starting an SWP makes the transfer of money seamless for Raj and ensures that he does not forget to transfer money occasionally.

  • Retiree – SWP as pension

Being a careful investor like his parents Raj has been able to build a decent corpus. Post retirement when he was looking for a monthly source income SWP was the natural option. With your help he immediately set-up a fixed amount SWP from his debt investments.

Though SWP is an excellent tool, you need to be careful of its tax implications. To elaborate SWP means that the amount will be withdrawn from the mutual fund scheme. Thus, the account holder/ guardian (in case of a minor) will be liable for any capital gains tax on that amount.

Tell us if your clients would like to start an SWP to fulfil their different life-stage needs.


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