In ULIPs, the investment risk in the investment portfolio is borne by the policyholder^U.

The Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Linked Insurance Products completely or partially till the end of the fifth year.

Financial needs are rarely one-time expenses and often come in instalments, like monthly utility bills, school fees and others. Hence, instead of withdrawing a lump sum, most people prefer a stream of income. Certain investment instruments like ULIPs offer a Systematic Withdrawal Plan (SWP). So, what is SWP? Let’s find out more about SWPs and how they work.

What is a Systematic Withdrawal Plan (SWP)?

A SWP is a withdrawal option offered by ULIP products and some mutual funds, that allows you to withdraw a certain amount from your investment at regular intervals. This feature can help you to fulfil some of your recurring financial needs.

While you receive periodic payouts, the remaining investment continues to stay in the fund, with the potential for growth.

What are the benefits offered by a Systematic Withdrawal Plan?

Below are some benefits of SWPs:

• Regular income: SWP can provide funds at your chosen frequency. It is ideal for covering recurring expenses such as bills, loan EMIs and other expenses
• Potential for future growth: SWP ensures that the remaining balance stays invested in the market. This allows your money to continue growing over time, compared to keeping funds in a savings account
• Inflation protection: Since only a portion of your funds is withdrawn through SWP, the remaining investment earns market-linked returns, helping to offset inflation in the long run
• Systematic approach: SWP ensures that your withdrawals are structured, so you do not exhaust your funds too quickly
• Flexibility: SWP allows you to decide how much and how often you want to withdraw based on your financial goals. You can also modify the withdrawal amount over time or stop it entirely if your financial needs change

What are the different types of Systematic Withdrawal Plans in India?

There are two main types of SWPs:

• Fixed amount SWP: This option allows you to specify a fixed amount to be withdrawn from your investment at regular intervals
• Appreciation SWP: This option allows you to withdraw only the profits earned by your investment. The principal stays invested in the scheme and continues to grow over time

How does a Systematic Withdrawal Plan (SWP) work?

An SWP allows you to withdraw a fixed amount or only the gains from your investment at regular intervals. You can decide how much you want to withdraw from your investment. Withdrawals can be set up on a monthly, quarterly or annual frequency, depending on your financial needs.

The selected percentage of the fund value is automatically transferred to your bank account on the chosen date. The remaining balance stays invested in the ULIP or mutual fund, allowing it to grow over time.

SWP and ULIPs

The concept of SWP has usually been considered only for mutual funds. However, new age ULIPs also offer a SWP feature where you can withdraw money regularly. This payout can be monthly, quarterly, half-yearly or yearly.

The withdrawal amount can be a pre-determined percentage from the fund value and can be received only after the five-year lock-in period is completed and provided all the premiums have been paid.

SWP through ULIPs, when planned and invested properly, can provide income during your working and retirement years. This money can help in fulfilling short and long-term financial goals.

Who should consider investing in an SWP?

Here’s who can benefit the most:

• Loan borrowers: If you have ongoing loan repayments, an SWP can help manage these costs without disrupting your long-term investments
• Parents: Parents can cover education expenses, tuition fees or other child-related expenses through an SWP
• Retirees: Those needing a reliable source of post-retirement income can use SWPs without depleting their savings
• Anyone with recurring expenses: Anybody with recurring expenses like rent, medical bills or monthly household expenses can use an SWP

People like you also read ...