You have made your investments in a mutual fund, but have you thought about how to withdraw funds when it comes time to reap the benefits of your investment? A Systematic Withdrawal Plan (SWP) is one of the ways to withdraw money from your mutual fund (MF) investment. With a SWP, you can withdraw a fixed or a variable amount periodically.
Why should you use SWP?
While many people withdraw money from a mutual fund by just selling off their units in bulk or fragments, a SWP facility offered by mutual fund can be a better way to plan your mutual fund withdrawals; here is why you should think about a SWP facility:
Automated Withdrawals: You can issue standing instructions to your mutual fund and bank to transfer the pre-determined SWP into your bank account at a particular date each month/quarter.
Book profits systematically: After years of investment, you should reap the benefits of your long-term investment in equity mutual funds systematically. SWPs allow you to gradually withdraw from the funds, while the non-withdrawn corpus can still earn market linked returns.
Solution to many financial needs: SWPs address a number of financial needs for investors. They can be used to create a regular additional stream of income for investors which can be used for children's education, rent, regular medical expenses or just for supporting regular expenses. SWPs are also an ideal choice for funding regular income during retirement years.
How does a SWP work?
In order to start a SWP, you usually need to fill a SWP form or you can make your SWP application online on the mutual fund’s website.There are two options for SWPs:
Fixed Periodic Withdrawal: This allows you to withdraw a fixed sum at regular intervals. On the fixed date, units equivalent to SWP amount are redeemed and the money is transferred to your bank account.
Appreciation Withdrawal: In this SWP, only the appreciation on the fund or gains are withdrawn. You can specify withdrawal frequency of the fund; as an example, if you invested Rs. 20 lakh in a mutual fund and it appreciates by 1.5% each month, if you choose a monthly SWP, you could get a credit of Rs.30,000 from your fund each month in your bank account.
Tax implications of SWP
A big reason to use SWP is its tax efficiency. Taxes are not deducted at source on a SWP like some other investments. Taxes are only applicable on the withdrawn or redeemed units in the case of a mutual fund SWP. Here are the applicable taxes on both equity and debt SWPs:
Now that you know what is SWP, you have the ability to better manage your redemptions from mutual funds to take advantage of their potential to create regular income, book profits regularly and save taxes.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
