Panchatantra of Investing

Regular Withdrawal Plan (RWP)

An RWP allows an investor to withdraw a designated sum of money and units from the fund account at pre-defined regular intervals. It allows investors a certain level of independence from market instability and helps in avoiding market timing. The investor can reinvest the redeemed cash in another portfolio or use it as a source of regular income.

Regular Income - RWP helps in creating a regular flow of money from investments on a periodic basis i.e. on a monthly or quarterly basis.

Tax Benefit - Instead of selling all the units at once, spanning the income across multiple intervals can lower the total tax. It is a tax efficient way of receiving regular income.

Avoid market fluctuations - It saves an investor from market fluctuations, as regular withdrawal averages out return value.

An RWP allows you to withdraw a fixed sum of money every month or quarter depending on the option chosen and instructions given by you.

Let's say Ashish has 10,000 units in a mutual fund scheme on 1-Dec-11. He intends to withdraw 6,000 every month through RWP.

Date Opening Balance (Units) NAV Units Redeemed Closing Balance
1-Dec-11 10000 20 300 (6000/20) 9700
1-Jan-12 9700 18 333.33 (6000/18) 9366.67
1-Feb-12 9366.67 22 272.73 (6000/22) 9093.94

In this manner, units from mutual fund holdings will be redeemed in a systematic way to provide the investor with regular income.

RWP is usually available in two options:

Fixed Withdrawal: In a fixed withdrawal option, the investor specifies the amount he wants to withdraw from his investment on a monthly/quarterly basis.

Appreciation Withdrawal: In an appreciation withdrawal option, the investor withdraws only the appreciated amount on a monthly/quarterly basis.

An RWP can help investors who require liquidity as it permits them to access their money precisely when they need it to meet their needs.

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