Topic Details

https://freefincal.com/feed/gn

Last successful fetch

Tue, 13 Jan 2026 00:54:27 +0000

Last ping

Tue, 13 Jan 2026 00:31:31 +0000

Last fetch error

Wed, 21 Jun 2023 20:09:11 +0000 (HTTP 504)

Aggregate statistics

0 fetch request(s) per second to freefincal.com, 0% errors, based on latest 300 seconds

Last item retrieved

Content received

Tue, 13 Jan 2026 00:54:29 +0000

<item>
				<title>Why you should not start a SWP from a volatile mutual fund</title>
				<link>https://freefincal.com/why-you-should-not-start-a-swp-from-a-volatile-mutual-fund/</link>
				<pubDate>Tue, 13 Jan 2026 00:30:26 +0000</pubDate>
								<dc:creator><![CDATA[M. Pattabiraman]]></dc:creator>				<guid isPermaLink="false">https://freefincal.com/?p=333242</guid>
					<description><![CDATA[With the SIP campaign a grand success, the mutual fund industry has started promoting SWPs....]]></description>

				<content:encoded><![CDATA[<figure><img src="https://freefincal.com/wp-content/uploads/2026/01/Rolling-SWP-analysis-results-showing-the-maximum-falls-in-the-corpus-with-respect-to-the-initial-amount-invested.jpg" class="type:primaryImage" /></figure><p>With the SIP campaign a grand success, the mutual fund industry has started promoting SWPs. The sales pitch is this: Invest a lump sum in a hybrid fund like balanced advantage, dynamic asset allocation, aggressive hybrid and the like. As you keep systematically withdrawing, the remaining corpus will grow. Don&#8217;t worry about intermittent volatility; the &#8220;backtest&#8221; shows the corpus increases in value.</p>
<p>The problem is that if you get a bad sequence of returns after you invest the lump sum, the corpus will keep decreasing in value as you keep withdrawing, since the NAV keeps falling or stays stagnant. You will be under severe emotional strain. The counterargument is, <em>stop withdrawing when the market falls or withdraw less</em>.</p>
<p>This again makes no sense. My expenses do not stop or decrease if the market falls. I cannot vary withdrawals for regular income.  And why would I start a SWP if I did not want a regular income? If I wanted occasional or discretionary cash flow, I could have redeemed manually (which is the right approach for volatile funds).</p>
<p>We did a rolling 15-year SWP analysis from April 1979 to Jan 2026 using (1) Sensex and (2) a hybrid index with 50% Sensex and 50% fixed interest of 8%. The monthly withdrawal rate was 4%/12 (annual rate is 4%) from a 25X corpus. Most people invest far less, but we want a situation where the SWP is always successful. That is, the money will last for 15Y periods.</p>
<p>In real life, depending on how you put in, take out, how long you run the SWP for, and future return sequences, the money can run out. When you redeem from an MF, you cannot simply redeem only the profits. The principal will also be redeemed each time, along with the capital gain (if any).</p>
<p>For each SWP run in the period mentioned above, these are the maximum falls in the corpus with respect to the initial amount invested.</p>

<p>Even for eventually &#8220;successful&#8221; SWPs, 20%-30%(+) falls are not uncommon for the hybrid funds. The key point to appreciate here is that when someone says a SWP worked, they are showing you the final result. The retiree has to be the one who lives through that journey.</p>
<p>Such journeys are full of pitfalls, as the above graph shows. Most people who are enticed by SWPs are those who wish to make up for a small corpus. They cannot afford the emotional or financial risks.</p>
<p>Also, keep in mind that we have used an imaginary hybrid index with fixed 8% debt returns and a 50% equity allocation, reset each month. In practice, the equity allocation in the hybrid funds recommended for SWPS can be higher (or lower) from time to time. It is not unreasonable to expect a bit higher drawdown than the ones shown above.</p>
<p><strong>What should an investor do?</strong></p>
<ul>
<li>Use only liquid funds, money market funds or arbitrage funds (if you appreciate risks) for SWPs. The NAV is significantly less volatile, and the drawdowns will be lower.</li>
<li>Avoid SWPs in equity funds or hybrid funds (except perhaps arbitrage funds, which are also hybrid these days). Use these for occasional or discretionary expenses, or as medium- or high-risk components of your retirement buckets (if you can afford the risk). See: <a href="https://freefincal.com/how-to-use-safe-withdrawal-rates-to-gauge-retirement-corpus-health/">How to use safe withdrawal rates to gauge retirement corpus health</a></li>
</ul>
<p>The post <a href="https://freefincal.com/why-you-should-not-start-a-swp-from-a-volatile-mutual-fund/">Why you should not start a SWP from a volatile mutual fund</a> appeared first on <a href="https://freefincal.com">freefincal</a>.</p>
]]></content:encoded>
		<post-id xmlns="com-wordpress:feed-additions:1">333242</post-id>			</item>