Mutual Fund Investment -
Using SWP - Systematic Withdrawal Plan for Monthly Cash Flow...!
For investors needing a
monthly cash flow from their mutual fund corpus, systematic withdrawal plan
(SWP) is a tool that helps them meet that requirement. It can be implemented in
any open-ended mutual fund scheme.
1. How does SWP work?
SWP is a facility
through which investors can withdraw a fixed amount from a mutual fund scheme.
The frequency of withdrawal could be monthly or quarterly .
There is an option to
customise the withdrawal you may with draw just a fixed amount or even opt to
pull out just the gains on the investments.
2. How is SWP better than the dividend option?
An SWP is more reliable
than a dividend plan when it comes to regular income. In the dividend plan of
an equity fund, both the quantum and frequency of dividend is not guaranteed,
and it largely depends on market movements & the profits that the asset
management company makes.
3. What about taxation?
The tax treatment of
each withdrawal under SWP will be the same as applicable to equity and debt
funds.
Hence, for units where
the period of holding is less than 12 months for equity funds, investors will
have to pay short-term capital gains tax. For debt funds, there will be a tax
liability on holding for less than 36 months, and long-term capital gains on
longer holding periods.
In addition to this,
investors also need to keep in mind the exit load of the scheme.
4. How do you start an SWP?
An SWP can be started
anytime.
You can start it while
investing in a fund. Also, you can activate the SWP option in a fund you
already hold. For that, you need to simply fill out an instruction slip with
the AMC stating the folio number, withdrawal frequency , date for the first
withdrawal and the bank account to credit the proceeds.
Src: ET, Prashant Mahesh
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