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      Riding market trends with Momentum Investing

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      What is Momentum Investing – A Simple Explanation

      What is Momentum Investing – A Simple Explanation

      The Basics of Passive Investing — Understanding Index Funds

      The Basics of Passive Investing — Understanding Index Funds

      How to Invest in Index Funds

      How to Invest in Index Funds

      Large-cap Stocks, Small-cap Stocks, Mid-cap Stocks — What is the difference?

      Large-cap Stocks, Small-cap Stocks, Mid-cap Stocks — What is the difference?

      Nifty 50 Index Vs Nifty 500 Index – A Beginner’s Guide

      Nifty 50 Index Vs Nifty 500 Index – A Beginner’s Guide

      Mutual Fund AUM: Unveiling the Backbone of Investment

      Mutual Fund AUM: Unveiling the Backbone of Investment

      Mutual Fund Taxation – Are Mutual Funds Taxable?

      Mutual Fund Taxation – Are Mutual Funds Taxable?

      Secure Your Retirement Years with Mutual Funds

      Secure Your Retirement Years with Mutual Funds

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        Understanding the different Mutual Fund categorizations by Market Cap

        Understanding the different Mutual Fund categorizations by Market Cap

        Investing in Lumpsum or SIP

        Investing in Lumpsum or SIP

        Performance be a by-product

        Performance be a by-product

        What is Real Investing and why it requires grit and stubbornness?

        What is Real Investing and why it requires grit and stubbornness?

        5 Reason to Boost your SIP

        5 Reason to Boost your SIP

        Understanding the types of Mutual Funds

        Understanding the types of Mutual Funds

        Why SWP is wise decision than investing in Fixed Deposits?

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        Ep. 10: Evolution of Indian FMCG Sector

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        Ep. 09: Evolution of Indian Pharmaceutical Sector

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        Ep. 08: Value Migration

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        Ep. 07: Wealth Creation Studies

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      Why SWP is wise decision than investing in Fixed Deposits?
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      Most people turn to Fixed Deposits with Banks as a means to get regular income, especially during retirement. Fixed Deposits have their own merits, due to their simple structure, predictable payout and convenience. In this episode, we wish to explore an alternate mechanism for regular income, called Systematic Withdrawal Plan (or SWP).

      We all are familiar with SIP, where a fixed amount is invested in a mutual fund at fixed interval. SWP is just opposite of SIP, where it allows you to withdraw a fixed amount from the mutual fund at regular intervals. Question is: Is it better to invest in a mutual fund and withdraw using SWP, compared to a Fixed Deposit which pays periodic interest? Yes, it is. Let us look at how?

      Compared to a fixed deposit, SWP brings all the benefits of investment in a mutual fund to your portfolio. This translates to a better tax treatment, higher capital appreciation, flexibility of investment options as per your risk profile and liquidity.

      Let us start with flexibility of investment with SWP.
      Compared to a FD with bank which is only a debt instrument, here in SWP you could choose from Equity mutual funds, Hybrid mutual funds or Long Term or Short Term Debt Mutual Funds as per your risk profile, and start an SWP on your investment. Hybrid funds are generally favoured for SWP, because of their ability to give better returns compared to Debt while keeping the market fluctuations lower than pure Equity mutual funds.

      SWP redemption is as per first in first out (FIFO) method wherein units first bought are assumed to be redeemed first. Thus, your tax incidence on SWP depends on FIFO method and holding period.

      With a Mutual fund and SWP, the capital grows despite the withdrawals, subject to market conditions, whereas the Principal remains same in Fixed Deposits. Hence a Mutual Fund with SWP could potentially provide an inflation beating return better than Fixed Deposit.

      In the long run a Mutual Fund with SWP will give a higher return, compared to a Fixed deposit where a 5 year+ FD might attract a lower interest rate.
      And finally, in a Mutual Fund with SWP, one can opt out of the scheme as per his will, subject to exit load (if applicable), but in Fixed Deposit a pre-mature closure would result into lowering the applicable interest rate.

      Now you know that a SWP could be a better option compared to a Fixed deposit to meet your regular income needs. We hope you have learnt something new today, as it is our constant endeavour to educate and make an ‘investor’ a ‘sound investor’! Happy Investing!

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      EquitySahiHai is an investor education initiative by Motilal Oswal Asset Management to educate and empower of yourself by through a series of videos that bring to you insights from stock market & mutual fund experts.

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