Systematic Withdrawal Plan (SWPs) in Nepal

Financial planning is essential for ensuring financial stability and security in any part of the world, including Nepal. A Systematic Withdrawal Plan (SWP) is an investment strategy that allows individuals to withdraw money systematically from their mutual fund or investment portfolio. It is increasingly popular among retirees seeking consistent income or anyone looking for controlled access to their investment returns.

This detailed guide discusses how SWPs operate in Nepal, their key benefits, and tips to make the most of them for sustainable income and financial health.

What Is a Systematic Withdrawal Plan (SWP)?

A Systematic Withdrawal Plan (SWP) allows investors to withdraw a fixed amount of money regularly from their investments, such as mutual funds. This means you can take out money at specific intervals like monthly, quarterly, or yearly, depending on your preference. The best part is that you don’t need to withdraw all your money at once—your remaining investment keeps earning returns. This plan balances income with growth, making it a reliable option for financial security. SWPs are particularly helpful for retirees in Nepal who need regular income to meet their expenses. 

Why Are SWPs Relevant in Nepal?

SWPs are becoming popular in Nepal because more people focus on financial planning and independence.

Lack of Social Security Systems

Nepal does not have a robust social security system, meaning that retirees often don’t have guaranteed government support. As a result, many people rely on their own savings or investments to maintain their livelihood in old age. This creates a situation where planning for retirement becomes essential. People need to ensure they can fund their living expenses once they stop working.

Preference for Regular Income

In Nepal, many people prefer Systematic Withdrawal Plans (SWPs) because they offer a regular income. This income can be withdrawn monthly or quarterly, giving individuals a predictable cash flow. Regular withdrawals help people cover living costs, especially as their savings or investments are gradually used. With steady income, they can budget more effectively and avoid running out of funds unexpectedly.

Modern Lifestyle Needs

As the cost of living rises, people are increasingly seeking ways to manage their savings smartly. SWPs provide a solution by allowing individuals to access a portion of their savings regularly, instead of withdrawing large sums all at once. This ensures that people can maintain their lifestyle without depleting their resources too quickly. It helps manage finances effectively while taking care of ongoing financial needs and future security.

This combination makes SWPs a flexible and practical option for many families in Nepal.

Key Benefits of SWPs in Nepal

Steady Cash Flow

SWPs offer regular withdrawals that provide a steady cash flow, making it easier to cover daily expenses. For retirees, having a predictable income every month or quarter ensures they can maintain a stable lifestyle. This approach gives peace of mind, knowing that funds will be available without the need for constant savings monitoring. The regularity of payments makes it less stressful to manage day-to-day financial needs.

Flexible Withdrawal Options

One of the major benefits of SWPs is the flexibility they offer. Individuals can decide how much money to withdraw and how often, whether it's monthly, quarterly, or at other intervals. This ability to customize withdrawals according to specific financial goals makes SWPs a suitable option for people with diverse financial situations. It gives greater control over personal finances, adapting to changing needs over time.

Tax Efficiency

With SWPs, instead of withdrawing a large sum, smaller structured withdrawals are made over time, which can reduce the amount of taxes owed. Because the funds are spread out, they may keep the individual’s total income lower, potentially keeping them in a lower tax bracket. This strategy helps in optimizing savings and minimizing tax liabilities. By managing withdrawals smartly, SWPs contribute to overall tax efficiency, improving long-term financial management.

Capital Preservation with Growth

With SWPs, your remaining money continues to grow even after you withdraw some. This allows you to preserve your principal investment while still earning returns. It ensures that you can maintain a financial cushion for future needs, providing ongoing stability. The continued growth of your remaining balance helps you balance withdrawals and potential future expenses.

Crisis Management

In case of emergencies, SWPs allow you to access funds quickly without having to withdraw your entire investment. This means you don’t have to worry about losing your long-term investment by breaking it. SWPs give you the flexibility to respond to urgent financial situations while keeping your other investments intact. They help manage unforeseen costs efficiently without affecting overall financial plans.

How SWPs Work in Nepal

Step 1: Choose the Investment Scheme

First, select the type of mutual fund or investment best suited to your needs, whether it's equity, debt, or a hybrid fund. Make sure it aligns with your risk level and long-term financial goals.

Step 2: Decide the Withdrawal Amount

Decide on the amount to withdraw each month or quarter, ensuring it covers your expenses but doesn’t drain your savings too quickly. Keep your withdrawal amount reasonable and sustainable for the long term.

Step 3: Select the Time Period

Choose how frequently you wish to make withdrawals—monthly, quarterly, or annually—depending on your financial needs. Regularity ensures a steady income stream when required.

Step 4: Watch Your Capital Grow

As you withdraw from your investments, the remaining funds continue to generate returns. This keeps your overall portfolio growing and helps ensure future financial stability.

Best Practices for Maximizing SWPs in Nepal

Select Stable Investments

Opt for mutual funds or investment schemes with a proven track record of consistent returns. Low-risk investments will help ensure that your withdrawals remain stable and secure over time.

Consult Financial Advisors

Seeking advice from a financial expert can guide you in choosing the best investment options for your goals and risk tolerance. Advisors help tailor SWPs to suit your needs within the context of Nepal’s financial environment.

Reevaluate Regularly

It’s important to review your SWP at least once a year. As inflation increases or your financial needs change, you may need to adjust your withdrawal amount to maintain your financial stability.

Understand Fees and Charges

Be aware of any fees associated with your investments or withdrawals. Understanding these charges helps avoid surprises and ensures better financial planning.

Avoid Overdrawing

Withdrawing too much can deplete your investments quickly. Stick to withdrawing small amounts to ensure your savings last longer, preserving your funds for the future.

Who Should Option for SWPs in Nepal?

Retirees Needing Steady Income

SWPs are an excellent choice for retirees who require consistent monthly income to cover their bills and expenses. They provide financial security while allowing funds to continue growing.

Investors Avoiding Lump-Sum Withdrawals

If managing large sums of money seems overwhelming, SWPs offer a safe, gradual way to withdraw funds. It allows you to benefit from your investment returns without losing large amounts at once.

Individuals Funding Periodic Goals

SWPs are ideal for people in Nepal who want to cover significant events like children’s education, weddings, or travel. By withdrawing in installments, they can meet their financial goals without exhausting their savings too soon.

Challenges and Considerations for SWPs in Nepal

Limited Availability of Financial Instruments

In Nepal, not all mutual funds or investment companies offer SWP options, limiting the number of choices available for investors. This can make it harder to find suitable investment plans that meet personal financial goals. As a result, investors may have to consider fewer options when seeking regular income from their savings.

Market Risk in a Volatile Economy

Nepal’s financial markets are often volatile, meaning the value of investments could fluctuate over time. This unpredictability can affect the growth of funds used in an SWP, potentially leading to lower returns. Market risk introduces uncertainty, which can impact the reliability of regular withdrawals.

Inflation Loss

When withdrawal amounts are fixed, they might lose their value over time due to inflation, reducing what they can buy. As the cost of living rises, fixed withdrawals may not cover daily expenses as effectively. This means that while the amount withdrawn stays the same, its purchasing power may decrease, leaving people with less financial security.

Popular Investment Institutions for SWPs in Nepal

Banks and Financial Institutions

Leading banks in Nepal, such as Nabil Bank, NIC Asia, and Standard Chartered Nepal, offer mutual funds with SWP features. These banks provide an option for individuals looking for a steady income through regular withdrawals from their investments. Their reliable services make it easier for people to manage their savings and retirement funds efficiently.

Mutual Fund Providers

Companies like Siddhartha Investment Growth Funds and NIBL Ace Capital offer mutual fund schemes that support SWPs. These providers make it easier for Nepali investors to access investment opportunities that offer consistent income, ensuring better financial planning. Their offerings help people in Nepal plan their long-term savings and achieve a regular income flow.

Learn about SIP in Nepal

FAQs (FREQUENTLY ASKED QUESTIONS)

1. Can I start an SWP with a small investment in Nepal?
Yes, SWPs can be started with minimal investments based on the mutual fund’s criteria, making them accessible to many individuals.

2. Are SWPs available in equity mutual funds in Nepal?
Yes, SWPs can be availed in equity mutual funds, but the returns may vary due to market fluctuations.

3. What happens if my SWP balance gets depleted?
If the withdrawals exceed returns, the principal amount may eventually reduce to zero. Plan your withdrawal rates carefully.

4. How is tax handled for SWPs in Nepal?
Taxation varies based on the type of investment and withdrawal amounts. Consult a tax expert for accurate guidance.

5. Can I modify the withdrawal amount in an SWP?
Most SWP plans allow adjustments but check with the specific provider in Nepal to confirm flexibility.