Most people want to deposit a fixed amount or a large amount, then banks opt for FD or postal deposit. It also gives regular income and money is also safe. But with the low interest rate available on them, people keep looking at other investment options as well.
Mumbai . Most people want to deposit a fixed amount or a large amount, then banks opt for FD or postal deposit. This would also give regular income and money is also safe. But with the low interest rate available on them, people keep looking at other investment options as well. Due to low interest, experts also recommend investing in other options instead of such traditional options.
For people looking at such investment options, SWP of Mutual Fund can also be a better option. From here you can also get regular income and also earn extra return on your principal. SWP means Systematic Withdrawal Plan.
What is Systematic Withdrawal Plan (SWP)
SWP is also a mutual fund investment plan like SIP (Systematic Investment Plan). In this, the investor gets an opportunity to choose the option of how much money to withdraw in how much time. That is, you get back a fixed amount. You can withdraw the amount on daily, every week, monthly, quarterly, 6 months or yearly basis as per your requirement.
Certified financial planner Amit Patel says, “No mutual fund guarantees fixed returns, but by choosing the right scheme, you are more than a bank FD You can earn returns. You can choose any type of mutual fund scheme for SWP like equity, debt or hybrid.”
Exit load in SWP
If you withdraw money before the specified period, then exit load is levied. For example, if you have an SWP of Rs 10,000 per month from the 6th month of your investment, then 1 per cent or Rs 100 will be deducted from the SWP installment every month.
Tax Liability
Tax is applicable in SWP depending on the type of fund you are withdrawing from and the tenure of your fund. In case of equity funds, withdrawals within 1 year of purchase will attract 15% tax under Short Term Capital Gains Tax (STCG). On exit after 1 year, profits above Rs 1 lakh will attract 10% tax under Long Term Capital Gains Tax (LTCG).
If you have invested money in debt funds, then after 3 years you will have to pay tax on withdrawal as per your tax slab and after 3 years after getting the benefit of indexation, 20% tax will be applicable.
Who is SWP right for?
If you want to get secondary income, want to increase your principal, plan to make a pension plan and for those who fall in higher tax bracket, this is a good option. According to Patel, “Through SWP, you can withdraw only the capital gain portion of the investment.
Unlike other investments, the profit portion in this is not taxed, so this option is good from the tax point of view. Monthly option is more popular for earning income. SWP is better as compared to dividend plans of mutual funds as 10 per cent TDS is deducted on the dividend and the dividend amount received by the investor is also considered taxable.
