Equity markets are at an all-time high, and commodities like gold are at their peak. Mutual Fund (MF) investments are showing a healthy return. So, how can investors make the most of such situations when equity markets are at an all-time high? Money experts suggest that investors can opt for a systematic withdrawal plan (SWP) in mutual funds to book some profits.
Systematic Withdrawal Plan (SWP)
Most investors are aware of investing through systematic investment plans (SIPs). However, SWP is just the opposite of SIP. A Systematic Withdrawal Plan (SWP) is a facility that allows an investor to withdraw money from an existing mutual fund at predetermined intervals. SWP helps investors to create a regular flow of income from their investments.
As the markets have hit an all-time high, investors can opt for SWP in mutual funds to book some profits. “Investors might use a systematic withdrawal plan (SWP) in mutual funds to book some profits given the stretched valuations and record-high market values. With such a strategy, a certain amount may be taken out of the fund on a monthly basis, leaving the money invested and just taking out the gains,” said Vinit Khandare, CEO and Founder, MyFundBazaar.
It is better for those who require liquidity as it enables accessing money when needed without having to worry.
“Moreover, an SWP helps to diversify the investment portfolio. It helps in creating an additional source of income. For senior citizens, SWP is the most efficient way to get a regular source of income,” said tax and investment expert Balwant Ja
“SIPs reduce your risk exposure by investing at regular intervals. SWPs reduce your FOMO(Fear of Missing Out) of selling your investments while the market is up. Through SWPs, you sell a portion of your assets at regular intervals. This ensures that you make your profit booking at regular intervals,” said Alpha Capital’s Ajay Agarwal.
What do you do with the redeemed money?
You could partially prepay your loans(Home or Car or Personal) OR make bank deposits. adventurous investors could invest the money into medium-term debt MFs and play the interest rate cycle.
Ajay Agarwal suggested retail investors exercise a degree of caution as markets are still expensive. “We believe markets are expensive by approximately 15% and one should sell expensive not buy,” said Agarwal.
Updated: 30 Jun 2023, 02:43 PM IST