Total investment ₹ 5,00,000
Total withdrawal ₹ 6,00,000
Final value ₹ 5,281
Different people have different financial needs. As a result, every investor has a distinct investment strategy. While some choose to invest all at once while some stagger their capital. Similarly, some may prefer the growth of their capital while some may use it as a source of their regular income. One such plan is the Systematic Withdrawal Plan or SWP.
A facility that gives investors the ability to regularly withdraw a predetermined amount from a mutual fund scheme is known as a Systematic Withdrawal Plan (SWP). You are able to pick the sum and recurrence of withdrawal. You can also choose to simply withdraw the investment's gains while maintaining your invested capital. Units from your portfolio will be sold on the specified date, and the proceeds will be deposited into your account.
When units are redeemed to receive the SWP amount, capital gain is applied to the profits from the sale of the units (if the redemption NAV is higher than the purchase NAV). Equity/equity oriented funds: If redeemed within 12 months of the date of investment, these are treated as short term gain and subject to 15% taxation. The following conditions determine whether the capital gain is short term or long term: Up to Rs 1 lakh in a fiscal year, gains made after a year from the date of investment are treated as long-term gains and exempt from tax. Taxes on long-term capital gains exceeding Rs 1 million are only 10%
Non-Equity Funds: If the investment is redeemed within 36 months (considered a short-term capital gain), the gains are taxed at the investor's personal tax rate. After allowing for the benefits of indexation, gains made after three years are regarded as long-term gains and subject to 20% taxation.
For resident individual investors, mutual funds do not have a TDS on capital gains, in contrast to traditional savings options like FDs and postal investments. In addition to TDS, the investor's income tax rate is applied to interest earned from FD and the majority of post office small savings plans.
Due to the fact that the AMC deducts TDS at a rate of 10% from the declared dividend, SWP in mutual funds is superior to dividends. Additionally, investors' dividends are subject to taxation.
The SWP (Systematic Withdrawal Plan) Calculator is a simulation of your mutual fund investments' monthly withdrawals. It depicts the total investment value of the mutual fund following the withdrawal. You might have the option to help a normal pay in retirement through the methodical withdrawal plan. The SWP Calculator has a number of components in it, one of which is a formula box where you must enter the total investment amount, monthly withdrawals, expected annual rate of return, and investment tenure. The SWP Calculator shows you the future worth of your mutual fund investments.
Let us try to understand the working of a SWP calculator by taking a look at the example below:
Let’s say you own 20,000 units in a mutual fund scheme. Now you have been notified with a clear set of instructions to the mutual fund house therefore, you seek to withdraw ₹5,000 every month through the SWP. Suppose on 1 January 2023, the NAV of the scheme was ₹10. Therefore, the mutual fund house would redeem 500 units (₹5,000/10 = 500 units) and give you an amount of ₹5,000. Thus, you still have 9,500 units left in the mutual fund scheme. Again, if on 1 February 2023, the NAV of the mutual fund scheme increased to ₹15, the mutual fund house would redeem 333 units (₹5,000/ ₹15 = 333 units) and give you ₹5,000 for the month of February. Now you are left with 9,500 units –333 units or 9,167 units. In a similar way, you can repeat the computations for the next several months.
SBI Equity Hybrid Regular Growth Plan - SBI Equity Hybrid Regular Growth Plan was launched on 31st December,1995 under the Mutual Fund House. It is an aggressive hybrid scheme that invests under equity and debt. It is likable for the investors looking for long term investments considering its moderate risk profile
Its combination of equity and debt. Thus, makes it suitable for long term capital appreciation and liquidity of an open ended plan. The plan is to invest the money in a diverse portfolio of high growing company stocks. Adding the rest of the money into fixed-income securities to spread out the risk.
HDFC Hybrid Equity Fund - Growth Plan - HDFC Hybrid Equity Growth Plan launched the hybrid aggressive plan on 1st April, 2005. The primary objective of the scheme is to generate capital appreciation in the long term through equity investments by investing in a diversified portfolio of mid cap and large cap blue chip companies. The fund aims to invest at least 35-65 per cent in large-cap stocks and 35-65 per cent in mid-cap stocks.
ICICI Pru Equity & Debt Growth Plan - The ICICI Prudential Mutual Fund launched the hybrid mutual fund ICICI Pru Equity & Debt Growth Plan on 5th November,1999. It includes investments in equities and related securities. It also deals as instruments of the money market and fixed income. The plan aims to generate both current income and long-term capital appreciation.
But it is important to keep track on the long term impact of frequent withdrawals during a scheme.
Furthermore, if the LTCG accrued on the amount withdrawn under the SWP remains below the 1 lakh threshold, a small investor may be able to avoid paying tax on his gains.