Is SWP risk-free?

A Systematic Withdrawal Plan (SWP) is not entirely risk-free, as it involves investments in mutual funds, which are subject to market risks. Here are some of the common risks associated with SWPs:

• Market Volatility: SWPs are affected by market ups and downs. If you withdraw a fixed amount during a market decline, you might use up your principal faster than expected, which can hurt your investment in the long run.
• Importance of Return Timing: The order in which your investment returns happen matters. If you face poor returns early on, it could lead to a faster depletion of your funds compared to if you had good returns first. Check the SWP calculator to know more about the profit you’ll earn.
• Inflation Risk: Over time, rising prices can reduce what your money can buy. If your withdrawals don’t keep up with inflation, you may find it harder to maintain your lifestyle.
• Limited Fund Access: SWPs are designed for regular income, not for sudden large expenses. This means you might not have quick access to cash when you need it.
• Tax Implications: Withdrawals from mutual funds can incur capital gains tax, which may lower your overall returns.