Systematic withdrawal structure

The Systematic Withdrawal feature within the Index Long Term Strategy is an innovative approach designed to cater to the financial needs of investors seeking a steady income stream, particularly aimed at retirees with a focus on regular expenses. This withdrawal mechanism is specifically applicable within the framework of the Relax Plan, a distinctive facet of the Index Long Term Strategy.

• Exclusive to Relax Plan:
  • The Systematic Withdrawal option is exclusively available within the Relax Plan, making it an integral component of this long-term investment strategy. The Relax Plan, in turn, demands a 100% commitment of the exposure value, ensuring a comprehensive and dedicated investment approach.
• 100% Investment of Exposure Value:
  • To participate in the Systematic Withdrawal feature, investors must allocate the entire exposure value. For example, if an investor opts for an exposure value of Rs. 1 Crore, they are required to invest the entire sum of Rs. 1 Crore into the Relax Plan.
• Withdrawal Commencing from the Second Month:
  • The Systematic Withdrawal option allows investors to initiate withdrawals from the second month onwards. This feature provides flexibility, enabling investors to start accessing returns early in the investment cycle.
• Withdrawal Percentage:
  • Investors opting for Systematic Withdrawal can withdraw 0.5% of the exposure value each month. Using the example above, an investor with a Rs. 1 Crore exposure value can withdraw Rs. 50,000 per month from the second month onwards.
• Targeted at Retirees:
  • Systematic Withdrawal is strategically advisable for retired individuals who seek a reliable and regular income to meet their day-to-day expenses. This aligns with the financial needs of retirees who prioritize consistent cash flow for their ongoing lifestyle requirements.
• Meeting Regular Expenses:
  • The primary objective of the Systematic Withdrawal option is to facilitate a dependable income source for investors, particularly retirees, who rely on their investments to cover regular living expenses. This ensures that individuals in their post-retirement phase can enjoy financial stability and peace of mind.

In conclusion, the Systematic Withdrawal feature within the Relax Plan of the Index Long Term Strategy represents a carefully crafted solution for investors looking to balance long-term growth with the need for consistent income. By combining the benefits of index-based strategies with a systematic withdrawal approach, this plan caters to the unique financial requirements of retirees, providing them with a reliable and structured income stream throughout their retirement years.

Not applicable in Marathon plans

The Marathon Plan, one of the advanced options under the Index Long Term Strategy, is specifically designed to maximize growth potential through leveraged exposure. However, due to its unique structure and cost dynamics, the Systematic Withdrawal feature is not offered under this plan. Let’s explore the key reasons in detail:

1. Double Exposure Structure:

The Marathon Plan operates on a 2x exposure model, meaning the investor receives market exposure equivalent to twice the amount of their actual investment.

• Example: If an investor puts in Rs. 50 Lakhs, they receive an exposure of Rs. 1 Crore.
• This leveraged structure amplifies the growth potential but also increases the associated risks and costs.
  

2. Double Cost:

Due to the 2x exposure, the cost of managing the plan also doubles compared to a standard plan like Relax.

• These costs include funding charges, hedging expenses, margin requirements, and other operational overheads required to maintain double exposure.
• The higher the exposure, the greater the financial commitment required to sustain it over time.
  

3. Funding Cost Covered via Debt Income:

To manage this higher cost burden, a portion of the investor’s funds is parked in debt instruments.

• The interest income generated from these debt funds is used to cover the annual costs associated with maintaining the 2x exposure.
• This ensures that the core exposure remains intact while the strategy continues to perform.
  

4. Why Systematic Withdrawal is Not Feasible:

Allowing systematic withdrawal from the Marathon Plan would disrupt this delicate balance:

• The debt portion is already committed to funding the additional cost of leverage.
• If withdrawals are allowed, the debt corpus would shrink, and the strategy might fail to generate sufficient interest income to meet the operational expenses.
• This could jeopardize the sustainability and performance of the plan over the long term.
  

Conclusion:

While the Marathon Plan offers aggressive growth through 2x exposure, it comes with higher financial obligations that are supported by debt interest income. Since this income is critical for maintaining the plan, Systematic Withdrawal cannot be allowed. The plan is best suited for investors focused purely on long-term capital growth without the need for regular income. Investors who do require regular withdrawals should consider the Relax Plan, which is specifically structured to provide a monthly income along with long-term wealth creation.

How does it work?

Systematic Withdrawal Process in the Relax Plan: A Step-by-Step Overview

Systematic Withdrawal in the Relax Plan of the Index Long Term Strategy involves a meticulous allocation of funds and strategic redemptions to ensure a steady payout for the investor. Let’s break down the process step by step:

• Relax Plan and 100% Investment:
  • The Systematic Withdrawal feature is exclusive to the Relax Plan, which mandates a 100% investment of the exposure value. Investors commit the entire sum to this plan to leverage the benefits of the Systematic Withdrawal option.
• Utilizing 30% in Index Long Term Strategy:
  • To gain exposure to the Index Long Term Strategy, 30% of the total investment is utilized. In the example provided, with an exposure value of Rs. 1 Crore, Rs. 30 Lakhs is used to take a 100% exposure in the index.
• Parking 70% in Debt Funds:
  • The remaining 70% of the investment, in this case, Rs. 70 Lakhs, is strategically allocated to debt funds. This allocation aims to generate interest income from the debt instruments, providing a stable source of returns.
• Monthly Payout Calculation:
  • The investor then initiates a Systematic Withdrawal for regular monthly payouts. The payout amount is set at 0.5% of the exposure value. Using the example, with an exposure value of Rs. 1 Crore, the monthly payout would amount to Rs. 50,000 (0.5% of Rs. 1 Crore).
• Redeeming Debt Funds for Payout:
  • To fulfill the monthly payout commitment, the investor redeems a portion of the debt funds. In this case, Rs. 50,000 is redeemed every month. The redemption is carefully managed to maintain the balance between the need for regular income and the preservation of the investment portfolio.
• Ongoing Systematic Withdrawal:
  • The investor continues this process, redeeming a portion of the debt funds each month to meet the Systematic Withdrawal commitment. This ensures a consistent and predictable monthly income for the investor.
• Balancing Portfolio and Income Needs:
  • The strategic allocation to both the Index Long Term Strategy and debt funds allows the investor to balance the potential for long-term growth with the need for regular income. By utilizing interest income from debt funds, the investor can sustain the Systematic Withdrawal without liquidating the entire investment.

In conclusion, the Systematic Withdrawal process in the Relax Plan involves a thoughtful allocation of funds, leveraging the potential of the Index Long Term Strategy for growth while securing a steady income through strategic redemptions from debt funds. This approach combines the advantages of both equity and debt instruments to meet the dual objectives of capital appreciation and regular income.

Performance Post Systematic Withdrawal 

The following Table shows the performance of Index Long Term strategy after systematic withdrawal. (Example: Exposure of Rs. 1 Crore)

Date	Nifty	Investment	Value	P&L	Nifty Return	Strategy
12/31/2002	1100	-1,00,00,000	1,00,00,000
12/31/2003	1880	6,00,000	1,61,33,056	67,33,056	71%	67%
12/31/2004	2081	6,00,000	1,66,21,332	10,88,276	11%	7%
12/30/2005	2837	6,00,000	2,14,07,058	53,85,726	36%	32%
12/29/2006	3966	6,00,000	2,85,23,043	77,15,985	40%	36%
12/31/2007	6139	6,00,000	4,24,98,565	1,45,75,522	55%	51%
12/31/2008	2959	6,00,000	4,03,94,292	-15,04,274	-52%	-4%
12/31/2009	5201	6,00,000	6,92,55,696	2,94,61,404	76%	73%
12/31/2010	6135	6,00,000	7,87,06,705	1,00,51,009	18%	15%
12/30/2011	4624	6,00,000	7,54,02,973	-27,03,732	-25%	-3%
12/31/2012	5905	6,00,000	9,33,51,081	1,85,48,107	28%	25%
12/31/2013	6304	6,00,000	9,58,76,182	31,25,101	7%	3%
12/31/2014	8283	6,00,000	12,20,94,987	2,68,18,805	31%	28%
12/31/2015	7946	6,00,000	11,73,63,500	-41,31,486	-4%	-3%
12/30/2016	8186	6,00,000	11,63,78,814	-3,84,686	3%	0%
12/29/2017	10531	6,00,000	14,51,62,825	2,93,84,011	29%	25%
12/31/2018	10780	6,00,000	14,31,03,275	-14,59,550	2%	-1%
12/31/2019	12168	6,00,000	15,60,98,854	1,35,95,579	13%	10%
12/31/2020	13982	6,00,000	17,34,97,987	1,79,99,133	15%	12%
12/31/2021	17354	6,00,000	20,89,08,277	3,60,10,290	24%	21%
12/31/2022	18191	6,00,000	21,13,85,462	24,77,185	5%	1%
12/31/2023	21731	6,00,000	24,48,30,761	3,34,45,299	19%	16%
		26,00,000	24,48,30,761

Exposure Explanation:

• 2002 – Initial Investment:
  • The investor initially invested Rs. 1 Crore in the Index Long Term Strategy in the year 2002.
• 2003 – Systematic Withdrawal Initiated:
  • The investor begins the Systematic Withdrawal, withdrawing Rs. 6 Lakhs annually from the investment.
• 2004 Onward – Exposure Value and Systematic Withdrawal:
  • The remaining exposure value is calculated by deducting the annual withdrawal from the initial exposure value.
  • The exposure value growth is calculated as the percentage increase in the remaining exposure value compared to the previous year.
  • This process continues for each subsequent year until 2022.
• 2023 – Cumulative Systematic Withdrawal and Ending Exposure Value:
  • By the year 2022, the investor has withdrawn a total of Rs. 1 Crore and 26 Lakhs through the Systematic Withdrawal.
  • Simultaneously, the exposure value has grown to Rs. 24.48 Crore, showcasing the long-term growth potential of the Index Long Term Strategy.

Conclusion:

The performance table illustrates the dual benefits of the Index Long Term Strategy. Despite the annual systematic withdrawals for regular income, the remaining exposure value demonstrates substantial growth over the years. This combination allows investors to enjoy both a reliable income stream and long-term capital appreciation, making the strategy well-suited for those seeking a balanced approach to financial planning.