Regular Income plan: You can also get regular income from your investments in Mutual Funds. For this you have to invest in Systematic Withdrawal Plan (SWP).
Regular Income plan: How if you get regular income every month from whatever you invest. Yes, you can also get regular income from your investments in Mutual Funds. For this you have to invest in Systematic Withdrawal Plan (SWP). But, what is this SWP? How will this give you regular income? And when is it beneficial to do SWP? Is this a better plan than SIP? We have tried to give you answers to some such questions.
What is Systematic Withdrawal Plan (SWP)?
Systematic Withdrawal Plan (SWP) is a one-of-a-kind facility. Through this, investors get back a fixed amount from Mutual Fund Schemes. Investors themselves choose the option of how much money to withdraw in how much time. They can do this work on a monthly or quarterly basis. By the way, the Monthly Option (Regular Monthly Income) is more popular. If the investor wants to withdraw only a certain amount or if he wants, he can withdraw the capital gains on the investment.
How to start SWP ?
SWP can be started at any time. It can be started as soon as you make the first investment. If you are investing in any scheme, then you can activate the SWP option in it. It can be started anytime for regular cash flow requirement. To activate the SWP, you need to fill an instruction slip in the AMC specifying the folio number, frequency of withdrawal, date of first withdrawal, bank account receiving the money.
What is SWP Funding?
- SWP is like a Systematic Investment Plan.
- SWP: Systematic Withdrawal Plan.
- The Systematic Withdrawal Plan is ‘panacea’ for investors.
- You can withdraw your money at regular period.
- This keeps the cash flow with the investor.
Regular income will be available through SWP
- With SWP, you can withdraw money at regular intervals.
- You can withdraw money on monthly, quarterly, yearly basis.
- Option to withdraw money from the account every month based on NAV.
- You can invest or spend this money in MFs.
- SWP is specially designed for senior citizens.
- Senior citizens benefit more from this.
- Senior citizens have to pay less tax on income.
Is this information necessary for SWP?
- From which fund do you want to run the SWP?
- How much SWP do you want?
- How long do you want SWP to run?
- It is necessary to specify the due date of the month.
What to know before starting SWP?
- If your investment is in debt funds.
- You are getting 8% return.
- Withdrawing 10% annually.
- So you are spending capital.
- The invested capital may be less.
- The amount needed in 5 years.
- Invest that amount in debt.
- Put the extra amount in a hybrid fund.
How does SWP work?
- You must specify the amount/date/duration of your SWP.
- Money will go into your account every month.
- This money comes from selling units from your fund.
- If the money in the fund runs out, the SWP will be closed.
Difference between SWP and SIP?
- In SIP, every month the fixed amount is deducted from your account.
- The amount deducted from the account goes for investment in mutual funds.
- The amount specified in SWP gets credited to your bank account.
- The amount of SWP comes from the sale of mutual fund units.
These precautions are necessary in SWP
- Never run SWP with Equity Mutual Fund.
- When the market falls, your fund gets affected.
- More units will have to be sold for the prescribed amount.
- Doing so will exhaust the portfolio very quickly.
- Debt/liquid funds are a better option for SWP.
Advantages of SWP
- Investors can choose the amount as per the requirement.
- Expect good returns by staying invested in the market.
- Good option to beat inflation.
- Can withstand market volatility.
How much tax on investment in SWP?
- STCG is levied on equity in less than 1 year.
- STCG on less than 3 years to date.
- If profit in equity exceeds `1 lakh then tax will be levied.
- Tax will be levied on redemption of equity mutual funds.
What to keep in mind?
- While doing SWP, you have to take care of the tax liability.
- Every withdrawal is considered a redemption.
- In such a situation, you have to pay capital gains tax on them.
- Capital gains are levied as per the prescribed tax slab.
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