What is Systematic Withdrawal Plan?
Systematic Withdrawal Plan or SWP is a mutual fund investment mechanism, by which investors can withdraw constant amounts at regular intervals; monthly or quarterly or every year from the investments made in any mutual fund scheme.
Investors can choose the month/quarter/year of payment and the amount will be credited to the investor’s bank account by AMC. To generate this cash flow, the SWP plan redeems units of the scheme at selected intervals. As long as the scheme has balance units, investors can continue with SWP.
In summary, SWP allows investors to
- Withdraw fixed amounts
- Choose the frequency of withdrawals
- Get regular income
Benefits of Systematic Withdrawal Plan (SWP)
Regular Income
SWP facilitates investors by providing them with a consistent income from their investments to meet their regular expenses.
Investors can also use SWP as a source of a second income or create their pension plan.
Customization
SWP allows investors the option to choose the withdrawal amount, frequency and date according to their own needs.
TDS is not applicable
There is no TDS on the SWP amount for residential individual investors.
Investors in the high tax bracket prefer SWP for the same reason, also the capital gains from both equity and debt funds is taxed moderately.
Taxation of SWP
When redeeming units to draw the SWP amount, capital gains tax has to be paid on the profits made from the sale of units. The structure for the same is as below-
| Type of mutual fund | Holding period (Short term capital gains) | Tax (Short term capital gains) | Holding period (Long term capital gains) | Tax (Long term capital gains) |
|---|---|---|---|---|
| Equity/ equity-oriented Funds | < 12 months | 15% + cess + surcharge | 12 months + | 1 lakh per year is tax exempt. Above 1 lakh taxed at 10% + cess + surcharge |
| Debt/ debt-oriented Funds | < 36 months | Investor’s income tax slab rate | 36 months + | 20% + cess + surcharge (with indexation) |
Also, have a look at Best Small Cap Mutual Funds & AMC Profiles, If you need any assistance on Mutual Fund Taxation, Systematic Withdrawal Plan or How To Invest In Mutual Funds Feel free to contact Wealth Baba – Financial Planner & Investment Advisor in India. We will try to help you out in the best possible way.
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