As a business owner, you’ve likely invested a significant amount of your time, energy, and resources into your company. While running a successful business can be incredibly rewarding, it can also be stressful and uncertain, particularly while managing finances. This is where a systematic withdrawal plan (SWP) in mutual funds can be beneficial, providing a steady stream of revenues.
In this blog, we’ll explore how an SWP can benefit you as a business owner and why it’s worth considering as part of your overall financial strategy.
What is a Systematic Withdrawal Plan in Mutual Funds?
Before diving into the benefits of an SWP for business owners, let’s briefly understand what it is. An SWP is an investment plan allowing you to withdraw a specific amount from your mutual fund investment regularly.
The withdrawals can be made monthly, quarterly, semi-annually, or annually, depending on your needs and preferences. In an SWP, you invest a lump sum of money in a mutual fund and set an amount for withdrawal as needed. Let’s understand it with an example.
For example, suppose you make a business money investment of ₹50 lakhs in a mutual fund offering 8% returns and decide to withdraw ₹1 lakh every month after every withdrawal. In that case, your invested amount will get reduced by ₹1 lakh. The amount left after withdrawal will remain invested and earn returns (see image).
You can use SWP calculators online to determine the investment’s final value.
Benefits for Corporates
Now that you know what SWP is, let’s see the benefits it brings to the table.
- Additional Revenue Source
SWP helps you with an additional source of revenue. You can deploy this extra revenue to grow your business by using it to buy new machinery, deploy new technology, undertake expansion plans, etc. Also, as a business owner, your revenues may fluctuate depending on the season, the market conditions, or the performance of your business. SWPs can provide a fixed income stream to help you manage your expenses and plan your finances better.
- Mitigate Investment Risk
An SWP can help you mitigate investment risk by providing a relatively predictable revenue stream. By withdrawing a fixed percentage of your investment’s value, you can reduce the impact of market fluctuations on your income and help ensure that you have a steady source of profits, regardless of how the markets are performing.
- Flexibility and Control
SWP offers flexibility and control over your investment With an SWP, you can choose the withdrawal amount, frequency, and start and end dates based on your business needs and preferences. This level of customisation can help you tailor your investment strategy to meet your specific goals.
Also, if your business experiences a temporary slowdown, you can use the money from the SWP to manage your expenses without having to dip into your business savings or take on debt. On the other hand, if your business experiences a sudden surge in demand, you can use the money from the SWP to invest in growth opportunities or meet unexpected expenses.
You can set up SWP in debt funds among several mutual fund options as they are relatively immune from market fluctuations.
The Final Word
SWPs can be an excellent tool for business owners who want to reduce their investment risks and create a regular income stream. Before setting up an SWP, thoroughly research the fund and select a fundamentally robust one with an excellent long-term track record.
Disclaimer: Mutual fund investments are subject to market risks, please read all scheme-related documents carefully.
The content of this blog is not intended to serve any professional advice or guidance and Shootih takes no responsibility or liability in whatsoever manner for any investment decisions made by the readers of this blog or other blogs. Readers should seek independent professional advice before making any investment decision based on the information provided on this website.
