Definition of Automatic Withdrawal Plan

Automatic Withdrawal Plan is the structure of payment arranged with a mutual fund in which investor receives a pre decided portion of funds from the invested funds periodically.

It is a strategy in which investor liquidates a portion of its portfolio and receives cash on a periodic basis, such as selling the equity shares each year in order to support the retirement. Automatic withdrawal plans are being used frequently for annuities, mutual fund accounts and sometimes for brokerage accounts.

Explanation

According to Automatic Withdrawal Plan, the investor receives an income stream during the retirement years, and maintaining the exposure to future growth by keeping the remaining fund invested in the mutual funds as long as possible.

In this plan, invested shares are to be sold to meet the supply of state amount of the withdrawal. If the amount is invested in different mutual funds by the investor, then the shares will be sold proportionate to what the investor owns. This strategy helps invest in keeping the asset allocation in balance.