When it comes to planning for income streams post retirement, retail investors often tend to think about traditional investment plans such as bank fixed deposits or postal deposits to meet their requirements. However, with the fall in interest rates, investors are waking up to a new reality – gone are the days when interest rates used to be in double digits. So, it is time to look at generating multiple streams of income apart from just the traditional options available.
As a means to address such a dilemma, ICICI Prudential has introduced ICICI Prudential Freedom SWP. SWP stands for Systematic Withdrawal Plan. This is a mutual fund investment plan, through which investors can withdraw fixed amounts at regular intervals from the investment they have made in a mutual fund scheme. This feature that allows the investor to periodically withdraw fixed amount i.e.6% p.a. from investment corpus along with an option of yearly Top Up of either 3%, 4% or 5%.
Under this feature investors will have to decide on the following aspects: 1) Choose a scheme to invest into 2) Specify the amount – This is the amount on which the 6% p.a. withdrawal will happen 3) Choose Top up per cent and 4) Choose the SWP start date. The withdrawals for payout will be made on the 25th of every month.
The scheme options available here is largely hybrid in nature. This is owing to the understanding that the risk profile of the investor would not be very aggressive at the current stage of their life. This is the time when it is imperative to protect one’s capital and keep away from being caught in the extremes of market volatility. For example: One of the options available among the schemes is a fund which the corpus invested is spread across equity and debt scheme. Here the fund manager dynamically manages the allocation to the asset classes based on a market metric or a combination of market matrices. The idea here is to enable the fund to increase allocation to equities when the valuation is attractive and conversely when the equity market valuation is expensive, the allocation will be largely towards debt. This will ensure that in the event of market volatility or a sharp correction, the investor’s interest of wealth creation and capital protection are both taken care of.
Investors who have access to invest a lump sum amount can also consider this fund. Such investors have the choice of withdrawing money immediately (15 days after registration) or later, depending on your financial situation. For instance, an initial lump sum investment of Rs 10 lakh and SWP rate of 6% per annum means monthly SWP with 3% Top up can be Rs 5,000 in the first year which progresses to Rs 6,524 in the 10th year. In case if the Top up is 4% the monthly SWP ranges from Rs. 5000 to Rs 7,117 and with a 5% Top up, the withdrawal amount can range from Rs 5,000 to Rs 7,757.
In case if there is an emergency and the investor is looking to raise fund, he/she can opt for partial/full redemption in the scheme during the course of Freedom SWP. SWP shall be processed till units are available under the scheme or till end date specified whichever is earlier.
In a nut-shell, Freedom SWP helps withdraw your investments in a disciplined manner and this is apt for long-term plans like retirement which need regular income flow. Even from a purely taxation point of view, Freedom SWP is highly tax-friendly. Also, the added flexibility in terms of SIP and Lump sum investments gives the investor another freedom to plan financial goals.
