SWP & Hybrid Funds: Low-Risk Income Strategy

Combining SWP and hybrid mutual funds: A strategy for risk-averse investors

Investing can often feel risky, especially for those who are retired or planning for a steady income. If you’re someone who prefers stability over high returns, there’s a simple strategy that can help — combining Systematic Withdrawal Plans (SWPs) with hybrid mutual funds. This approach offers regular income while keeping your money invested in a balanced way.

Let’s understand how this works and why it suits people who want to avoid too much risk.

What is an SWP?

An SWP, or Systematic Withdrawal Plan, lets you withdraw a fixed amount of money from your mutual fund investment at regular intervals — monthly, quarterly, or yearly. It’s the opposite of a SIP (Systematic Investment Plan), where you invest regularly.

With SWP, your investments stay in the fund, and only a portion is withdrawn each time. This helps you generate a steady income while keeping the rest of your money invested.

What are hybrid mutual funds?

Hybrid mutual funds invest in both equity (stocks) and debt (bonds, fixed income instruments). This mix gives you a balance of growth and stability. The debt portion adds stability, while the equity part gives your money a chance to grow.

There are different types of hybrid funds such as:

● Conservative Hybrid Funds: More debt, less equity.

● Balanced or Aggressive Hybrid Funds: More equity, less debt.

● Dynamic Asset Allocation Funds: The mix changes based on market conditions.

For risk-averse investors, conservative or balanced hybrid funds are usually a suitable fit.

Why combine SWP with hybrid mutual funds?

Let’s explore why this combination works well for people who want peace of mind with their investments.

1. Regular income with less risk

Using SWP on hybrid funds helps you get a fixed income regularly. Since hybrid funds already include debt, they are less volatile than pure equity funds. This means you are less likely to see big ups and downs in your investment value.

2. Relatively better returns

Many conservative investors prefer Fixed Deposits (FDs). But the returns on FDs are usually fixed and may not keep up with inflation. Hybrid mutual funds, when used with SWPs, may offer a chance to beat inflation while giving similar income flexibility. However, the returns in case of Hybrid Mutual Funds are market-linked and not guaranteed.

3. Tax Efficiency

SWPs can be more tax-friendly than interest income. Instead of paying tax on the full amount withdrawn, you pay tax only on the gains.

4. Keeps your capital invested

With an SWP, only a small part of your investment is withdrawn regularly. The remaining amount stays in the fund and continues to earn returns. Over time, this can help your capital last longer compared to withdrawing large chunks or relying only on savings.

How to plan an SWP with a hybrid fund?

Planning your SWP correctly is important. If you withdraw too much, your money might run out early. If you withdraw too little, you may not meet your monthly needs.

This is where an SWP calculator can help. It’s a simple online tool that shows:

● How much you can withdraw monthly

● How long your investment will last

● What returns you can expect

● How your balance will change over time

Using the calculator, you can adjust your monthly withdrawal to match your financial goals.

Example: How this works in real life

Let’s say you invest Rs. 10 lakhs in a conservative hybrid fund. You plan to withdraw Rs. 8,000 every month through an SWP.

Using an SWP calculator, you find that at an average return of 7% per year, your investment can support this withdrawal for over 15 years, maybe even longer, depending on market performance.

Meanwhile, your capital remains invested, giving you growth potential while meeting your monthly expenses.

Who should consider this strategy?

This approach is suitable for:

● Retired individuals looking for regular income.

● People with low risk appetite, such as conservative investors.

● Those planning for short-term financial goals, like children’s education or travel.

● Investors moving from high-risk to stable options after building wealth.

Things to keep in mind

While this is a relatively better option, there are a few points you should not ignore:

1. Returns are market-linked

Hybrid funds, though stable, are still subject to market ups and downs. Debt market movements and interest rate changes can also affect performance.

2. Withdrawal rate matters

If you withdraw more than the returns your fund is generating, your capital will reduce faster. Use an SWP calculator to plan this well.

3. Choose a suitable hybrid fund

Not all hybrid funds are the same. Some have higher equity exposure, while others are more stable. If you're risk-averse, go for conservative hybrid funds.

4. Tax planning

Understand the tax impact of your withdrawals. Equity-oriented hybrid funds have different tax rules than debt-oriented ones.

Combining an SWP with hybrid mutual funds can be a suitable way to create a steady income stream without taking too much risk. It’s especially useful for retirees or anyone looking for monthly income with some growth potential.

By using tools like an SWP calculator, you can plan your withdrawals carefully and make your money last longer. Always match your strategy to your comfort level and financial needs.

If you prefer stability with a touch of growth, this simple yet effective approach could be just what you need.

(Disclaimer: The views, information or opinions expressed above are solely those of the individuals who booked this classified advertisement and do not represent those of Assam Tribune Digital Pvt. Ltd. and its employees.)