Consider “Systematic Withdrawal Plan”(SWP)For Regular Income

Previously retirees rely on dividends for their regular income. Now it was re-named as Income Distribution Cum Capital Withdrawal Plan. Whatever the name is Perception of IDCW(Income Distribution Cum Capital Withdrawal)has changed.

This is due to resurgence of tax in the hands of the investors where “The income derived from the IDCW is included to the investors income and taxed accordingly to his/her applicable tax slab”.

This clause disappoints the investors sentiment to invest in IDCW(Previously Known as Dividends)as dividends are preferred by retirees for their regular source of income during their retirement. But now, the income derived from IDCW is taxed according to their tab slab which makes investors look after alternatives.

As an alternative, SWP(Systematic Withdrawal Plan)suits them as the corpus can be withdrawn systematically(Generally Monthly)besides no tax on the withdrawal corpus.

What is SWP and How Does it Suits For Regular Income?

Systematic Withdrawal Plan(SWP) is nothing but withdrawing some portion of the accumulated corpus monthly in a systematic manner.

If the investor earns huge corpus through his SIP/Lumpsum investments and want to derive regular income from the corpus, he can opt for SWP.

SWP amount facilitates regular income without worrying on the market movements. This would be applicable if the investor creates huge corpus and wanted to derive monthly income. The withdrawn amount from SWP is not taxable which is a better option than IDCW(Dividend)Plan.

SWP can be considered to derive monthly pay-outs from the mutual fund scheme to your bank a/c on a particular date.

SWP Mechanism-

A fixed amount is withdrawn on a particular date and credited to the investors bank a/c which can be used for their day-to-day needs. That fixed amount can be determined by the investor depending on his needs which will be auto-credited on a particular date fixed by the investor.

The withdrawn amount is not subject to tax, but ensure the equity investment you have done has completed 1 year to avoid paying Short-Term Capital Gains Tax

Why Capital Gains Would be levied if SWP is opted within equity investment?

Even though SWP is Tax-Free, The amount withdrawn through SWP is treated as “Redemption” which would attract STCG/LTCG depending on the holding period.

Generally STCG would be levied if the holding period is less than 1 year which would be taxable at 15%

Long-Term Capital Gain(LTCG)Tax would be levied if the investment is hold for more than 1 year but the capital gain is over and above 1 Lakh.

So Plan your SWP accordingly considering the tax structure.

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