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You must have heard about Mutual Fund’s Systematic Investment Plan (SIP). But, do you know about systematic withdrawal plan (SWP)? Actually, mutual fund investors use this option to meet the needs of their monthly cash flow. Come, know everything about SWP here.
What is Systematic withdrawal plan (SWP)?
Systematic withdrawal plan is a kind of feature. Through this, the investors get a fixed amount from the mutual fund scheme. How much money is to be taken in time, this option itself chooses the investor itself. They can work on a monthly or quarterly basis. The monthly option is more popular. If the investor chooses to withdraw only a fixed amount or if he wishes, they can remove the capital gains on the investment.
How can the SWP begin?
The SWP can be started at any time. It can be started once the first investment is made. If you are investing in a scheme then you can activate the SWP option in it. It can be started for the need of regular cash flow at any time. To activate SWP, you have to fill the instruction slip in AMC by telling the Folio number, the frequency of withdrawal, the date of first withdrawal, the bank account receiving the money.
Why are the Financial Advisors in favor of SWP?
Dividend Distribution Tax (DDT) on dividend seems to be. At the same time, there is no tax on capital gains up to Rs 1 lakh in any financial year. Apart from this, mutual funds can not guarantee dividends. It depends entirely on the market’s move, surplus and the profitability of the scheme. SWP is a more dependable option than dividend. There is complete control in the hands of the investor.
What are the laws of tax in SWP?
SWP is regular clearance. Through this the units are redeemed from the scheme. In this way, every single exit will be taxed as it is in case of equity and debt funds. Therefore, in cases where the holding period is not more than 12 months, investors will have to pay short-term capital gains tax. This is applicable for equity based funds. As far as debt funds are concerned, tax liability will be made differently in that case. There will be short-term capital gains on holdings of less than 36 months. Long-term capital gains are made when holding units for longer periods. Apart from this, investors need to keep in mind the exit load of the scheme. If withdrawal is from equity fund, then exit load at the end of the year would be 1 percent. Investors will have to bear the burden.
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