Mutual funds are not only a great option for investment, but if you need some cash every month or after a certain period, then mutual funds also give a better option. This option is called Systematic Withdrawal Plan (SWP). It is different from Systematic Investment Plan (SIP). Today we are giving you detailed information about SWP.
Generally, people make fixed deposits or postal deposits in the bank to meet the requirement of regular cash flow. FDs have become a bit more attractive after the recent hike in interest rates, but still they are not at par with mutual funds in terms of returns. Hence, those who know about SWP, go less towards FD.
After all, what is Systematic Withdrawal Plan
, if an investor wants a fixed amount from his fund every month or on 3 months or on an annual basis, then SWP can be resorted to. Under this, first a lump sum investment is made in a mutual fund. Then the Asset Management Company (AMC) will keep adding the same amount to your bank account on the due date. Under SWP, some units from the mutual fund scheme are sold every month to provide you cash. An investor can continue this as long as the money invested by him or the mutual fund units purchased from him is pending.
How To Withdraw Money: Fixed Periodic Withdrawal
Fixed Periodic Withdrawal allows a fixed amount to be withdrawn at a fixed time, like every month, quarter or after 6 months or a year. The mutual fund house will sell units equal to the SWP amount and transfer the funds to the investor’s account.
How to make money: Appreciation Withdrawal?
As the name suggests, the appreciation you get on your money will be withdrawal. It will be easy to understand it with an example. Suppose, a person has put 10 lakh rupees in a mutual fund, which averages 1.5 percent every month i.e. increases. If the investor takes the monthly SWP scheme under the Appreciation Withdrawal, then around Rs 15,000 will be transferred to his bank account every month. Since only the appreciation has been taken out, the original capital remains the same. However, it is affected by fluctuations in the market.
Benefits of SWP In a Systematic Withdrawal Plan, investors have every right to choose the amount, the period of withdrawal, and the date everything. Not only this, the investor can stop the SWP whenever he wants. If you want to invest, you can put more money or you can withdraw all the money at once.
Another big advantage is that it can be used like regular income. Along with regular income, the rest of your money keeps on increasing gradually. If you withdraw less than the returns of the fund, the money keeps on growing in the long run. For those who choose it for their regular expenses, it becomes a great plan.
Tax on Systematic Withdrawal Plan?
If you want, you can finalize an amount that you need every fixed period, or you can decide to remove the appreciation or capital gains. You have to pay capital gains tax. If you withdraw money after a longer period, then Long Term Capital Gains Tax (LTCG) will have to be paid. According to miraeassetmf.co.in, the tax types on different funds also change.
1. Equity Funds
, if you redeem within 12 months from the date of investment, are considered as short term gains and attract 15% tax. Gains made after 12 months from the date of investment are treated as long term capital gains and are tax-free up to Rs 1 lakh in a financial year. Long term capital gains tax is levied on more than Rs 1 lakh, which is currently 10%.
2. Non-Equity Funds
will be treated as short term capital gain if they are redeemed within 36 months from the date of investment. This investment is added to the income of the investor and taxed according to his bracket. Gains redeemed after 3 years are treated as long term and are taxed at 20% after indexation benefit.
(Disclaimer: Mutual fund investments are subject to market risk, read all the scheme documents carefully. If you wish to invest in any fund, first consult a certified investment advisor. For any profit or loss you may have, please consult a certified investment advisor. News18 will not be responsible for this.)
