Systematic retirement plan: an intelligent technique for regular income

brandwire_image_62480065 Use SWP intelligently for regular income brandwire_image_62480065

SWPs allow you to withdraw a fixed amount of money at periodic intervals from a fund (a fixed date every month, once every two months, or even quarterly). SWP is basically opposite to sip , where you invest a certain amount to buy to finance units. Just like in an sip , the amount to withdrawn through an SWP can be monthly, quarterly, semi-annually and annually. This facility generates an additional cash flow without the requirement of liquidating the entire investment.

Who can do SWP?

SWPs are useful for those looking to earn regular income, particularly the elderly. In fact, anyone who wants a regular flow of income, whether those in a sabbatical year, those looking to start their own business or even those who simply want to increase their cash flows, can benefit from this option.

How are they taxed?

The SWP exchange is according to the first in, first out (FIFO) method in which the units purchased for the first time are assumed to be redeemed first. Therefore, its costs for tax purposes will be considered according to the FIFO method.

If you redeem/withdraw your investments in equity mutual to finance s after 12 months, your investments would qualify for long-term capital gains tax. Long-term capital gains in excess of Rs 1 lakh are taxed at 10% currently. If you sell your equity mutual to finance investments before 12 months, you will have to pay a short-term capital gains tax at a rate of 15%.

Debt mutual to finance s qualify for long-term capital gains tax only if investments are held for three years or more. The long-term capital gains tax on debt to finance s is 20% with the inflation indexation benefit on your original investments. If debt mutual to finance investments are sold before three years, the short-term gains are taxed as per your applicable income tax slab.

Your SWPs will also be taxed according to the previous rules. Depending on your requirements and the tax slab, you can plan your SWP accordingly.


Source: Internal Value Research

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