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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds

Mr. Arvind Menon, aged 58, wants regular monthly cash flow, has a low risk appetite and a three-year horizon. He asks whether a systematic withdrawal plan (SWP) from a debt scheme would suit him. Which statement best reflects how an SWP works?

An SWP redeems units at the applicable NAV at fixed intervals, so each payout is a mix of capital and gains and the unit balance reduces over time. The payout is not guaranteed, and it is not funded from reserves.

  1. AUnits are redeemed at the applicable NAV at fixed intervals, so the amount withdrawn includes both capital and gains, and the unit balance fallsCorrect
  2. BThe scheme guarantees the fixed monthly amount regardless of NAV movement
  3. COnly the profits are withdrawn, so the number of units remains unchanged
  4. DThe SWP amount is paid out of the fund's reserves, not by redeeming units

Explanation

An SWP redeems the number of units equal to the withdrawal amount divided by NAV on each date, so units reduce and the payout is a mix of capital and gains. No mutual fund scheme guarantees payouts. Units are not left unchanged, and the payout does not come from reserves.

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