What if you could withdraw regular monthly income even during market crashes like COVID, demonetization, and bear markets?
This video explains the Three Bucket Strategy for Systematic Withdrawal Plan (SWP) using a realistic example backed by 15+ years of historical mutual fund data.
It clearly shows how this strategy manages risk, protects cash flow, and still grows wealth across multiple market cycles.
📌 This page contains the official video summary, explanation, and downloadable data related to the YouTube video.
This video provides an in-depth educational explanation of the Three Bucket Strategy, a financial planning model used primarily for systematic withdrawal plans (SWP), especially during retirement or for regular income needs. The presenter uses a realistic hypothetical example based on 15+ years of historical mutual fund data to illustrate how this strategy performs through market ups and downs, including multiple bear markets and economic crises.
Core Concepts and Explanation of the Three Bucket Strategy
The Three Bucket Strategy divides the total investment corpus into three distinct buckets or parts, each with different risk levels and investment horizons:
| Bucket Number | Investment Horizon | Risk Level | Typical Instruments | Purpose |
|---|---|---|---|---|
| First Bucket | 1–2 years | Low Risk | Liquid funds, Fixed Deposits | Provides regular income with minimal risk |
| Second Bucket | 3–7 years | Medium Risk | Balanced or Hybrid funds (mix of debt and equity) | Growth with moderate risk, cushions volatility |
| Third Bucket | 7+ years | High Risk | Equity or growth funds, often small-cap funds | Long-term growth with higher risk |
SWP (Systematic Withdrawal Plan):
Regular monthly or quarterly withdrawals from the corpus, used by retirees or those seeking periodic cash flow.
The presenter emphasizes the importance of risk management, cash flow continuity, asset allocation, and tax efficiency within this model.
Key Highlights from the Hypothetical Example (₹1 Crore Investment on 1 Oct 2010)
Despite five significant market losses between 2010 and 2024 (losses ranging from 19% to 43%, including the COVID-19 crash), the overall portfolio value grew substantially.
Withdrawal Details and Portfolio Performance
| Parameter | Value/Detail |
|---|---|
| Total Investment (Oct 2010) | ₹1 Crore |
| Withdrawal Rate | 6% annually (₹6 lakhs/year, ₹50,000/month) |
| Total Withdrawals till Jan 2026 | Approx. ₹85.5 lakhs (171 withdrawals × ₹50,000) |
| Portfolio Value as of Jan 2026 | ₹8.76 Crores |
| Inflation-adjusted value (6% pa) | Approx. ₹7.18 Crores |
| Tax Paid on Withdrawals | Approx. ₹2.8 lakhs over 15 years |
The example assumes a 1-year wait period before starting withdrawals to benefit from long-term capital gains tax treatment.
Corpus Allocation Across Buckets
| Bucket | Amount Allocated |
|---|---|
| Bucket 1 | ₹12 Lakhs (liquid fund) |
| Bucket 2 | ₹38 Lakhs (hybrid fund) |
| Bucket 3 | ₹50 Lakhs (small-cap fund) |
The strategy included refilling lower buckets from higher buckets over time, especially when market conditions caused losses in medium and high-risk buckets.
Important Observations and Insights
- Sequential market losses do not necessarily erode the corpus if withdrawals are managed prudently using the three bucket approach.
- Psychological benefit: The strategy offers emotional comfort by isolating short-term needs in low-risk buckets, reducing panic selling during market downturns.
- Tax efficiency: Waiting for one year before starting withdrawals allows for long-term capital gains tax advantages in India, currently around 12.5% with exemptions.
Liquid Funds vs Fixed Deposits (First Bucket)
- Liquid funds offer flexibility of partial withdrawals without penalties or TDS.
- FDs provide fixed interest but incur TDS on interest and penalties on premature breakage.
- Liquid funds are preferred for SWP due to these advantages, though the final choice depends on individual circumstances.
Withdrawal Rate Insight
A 6% annual withdrawal rate is considered a safe “thumb rule” for maintaining the corpus over a long period.
If withdrawals exceed this rate (example: ₹1 lakh/month instead of ₹50,000), the corpus depletes faster, forcing early liquidation of higher-risk buckets and reducing the final corpus value significantly.
Additional Considerations Covered
- Market volatility and bear markets: The example includes events like the European Debt Crisis, demonetization, ILFS-Yes Bank crisis, and COVID-19 crash demonstrating real market challenges.
- Inflation adjustment: Accounting for inflation lowers the real value of the corpus but the strategy still preserves significant wealth.
- Tax changes over time: The video illustrates how long-term capital gains tax was zero before 2018 and later introduced at 10–12.5%, affecting net returns.
- Customization: The strategy can be tailored for different financial goals, including managing EMIs, home loans, and other liabilities.
Presenter Credentials and Disclaimer
The presenter, Abhishek Chauhan, is a NISM Certified Mutual Fund Distributor (ARN 165168), emphasizing that this video is solely for educational purposes.
- No specific fund recommendations are made
- Viewers are advised to consult personal financial advisors
- Data and calculations are based on official historical NAV figures from mutual fund websites
Summary Table: Three Bucket Strategy Advantages
| Aspect | Description |
|---|---|
| Risk Management | Diversifies risk across time horizons and asset classes |
| Cash Flow Continuity | Ensures steady income from low-risk bucket while allowing growth in higher-risk buckets |
| Tax Efficiency | Leverages long-term capital gains tax benefits by waiting period and withdrawal timing |
| Psychological Comfort | Reduces stress during market downturns by isolating short-term needs |
| Flexibility | Allows refilling buckets and adjusting withdrawals based on market and personal needs |
| Inflation Protection | Medium and high buckets provide growth to offset inflation over long term |
FAQ (Based on Video Content)
What is the Three Bucket Strategy in SWP?
The Three Bucket Strategy is an investment approach where the total corpus is divided into three buckets based on time horizon and risk level to manage withdrawals and market volatility efficiently.
Why is it recommended to wait one year before starting an SWP?
Waiting for one year helps investors qualify for long-term capital gains tax treatment in India, which is lower than short-term tax rates and improves tax efficiency.
Can Fixed Deposits be used in the first bucket?
Yes, Fixed Deposits can be used in the first bucket. However, liquid mutual funds are often preferred due to better flexibility, no premature withdrawal penalties, and no TDS on withdrawals.
What is the recommended withdrawal rate under the Three Bucket Strategy?
A withdrawal rate of around 6% per year is generally considered a safe thumb rule to sustain the investment corpus over the long term.
Does past performance guarantee similar future returns?
No. Past performance is used only for educational illustration. Market returns can vary, and future performance is never guaranteed.
Conclusion
The video thoroughly demonstrates how the Three Bucket Strategy combined with an SWP can create a sustainable retirement income plan, balancing risk, reward, tax efficiency, and psychological stability. The 6% withdrawal rule is highlighted as a prudent guideline to maintain corpus longevity. Historical data and realistic assumptions validate this approach despite market fluctuations.
The educational focus encourages viewers to understand the mechanics before applying the strategy and to seek personalized advice from certified financial advisors.
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