We always heard that mutual funds are the better option for the long term investment because here the safety as compared to equities and higher returns as compared to small saving schemes. But did you know that mutual funds not only increase your wealth for long term, you can also earn monthly guaranteed income. This can be possible with the help of Systematic Withdrawal Plan (SWP).
WHAT IS SWP?
Systematic Withdrawal Plan is a facility through which investors get fixed amount of return from the mutual fund scheme. Investors themselves choose the option of how much money to withdraw in how much time. They can do this on a monthly or quarterly basis. By the way, the monthly option is more popular. If the investors want to withdraw only a certain amount, they can withdraw the capital gains on the investment.
TAX RULES IN SWP
- If you have invest in SWP scheme in mutual fund and want to start withdrawal before the completion of 36 months, then your profit will added to your income and you will have to pay tax at the applicable tax rate.
- But if you plan to start withdrawal after 36 months, then the gains will be treated as gains and will be taxed at 20 per cent post-induction. Therefore, planning early is beneficial in terms of tax.
SWP can be started at any time. If you are investing in any scheme then you can activate the SWP option in it. To activate the SWP, you need to fill an instruction slip in the AMC (Asset Management company), frequency of withdrawal, date of first withdrawal, bank account receiving the money.
DIFFERENCE BETWEEN SWP AND SIP
| SWP | SIP |
| The amount in the SWP gets credited to your bank account. The amount of SWP comes from the sale of mutual fund units. | In SIP every month the fixed amount is deducted from your account. The amount deducted from the account goes for investment in mutual funds. |