How is an SWP better?
1 The rate of return applied to the SWP is based on the returns of the performance of the fund selected
2 The rate of return applied to traditional savings instruments is 6% pa.
3 The tax deduction for fixed deposit is calculated assuming the person, falls in the 30 per cent tax bracket
Your Systematic Withdrawal Plan
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Frequently asked questions
In the above calculations, it has been assumed that investor falls under highest tax bracket (i.e., 30%) and total income of the investor does not exceed Rs. 1 crore. Gains on the redemption of units of mutual fund are treated as capital gains for income tax purpose if such units are held as capital assets. Investment in equity funds (having at least 65% equity allocation) for not more than 12 months is considered as short-term and attracts short-term capital gains tax of 15%. Gains from equity funds held for more than 12 months attracts long term capital gains tax of 10% (without indexation benefit) if the gains exceed Rs.1,00,000 in a year. Investment in non-equity funds for not more than 36 months is considered as short-term and attracts short-term capital gains tax at applicable tax/slab rates. Gains from non-equity mutual funds held for more than 36 months attracts long term capital gains tax of 20% (with indexation benefit). Investment in Specified Mutual Funds (having not more than 35% equity allocation) made on or after April 1, 2023 are considered short term irrespective of holding period and attract short term capital gains tax at applicable tax/slab rates. The basic tax would be increased by surcharge at applicable rates based on total income and Health & Education Cess of 4%.
At the time of the redemption of units, redemption amount comprises two parts. One is the invested amount and the other is gains on the invested amount. STCG/LTCG tax is applicable only on the gains made on the redemption units. In case of Systematic Withdrawal Plan (SWP), at the time of redemption of each instalment, investor needs to pay STCG/LTCG tax only on the gains part and not on the invested amount. Over a period of time with market appreciation, in each SWP instalment, invested amount (principal) component decreases and growth/gains part increases. Thus, it helps the investor over a period of time to consume less principal amount and thereby allowing the balance principal amount to grow further.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. In view of the individual circumstances and risk profile, each investor is advised to consult their investment/tax advisor(s) before making a decision to invest. This content is for information purposes only and is not an offer to sell or a solicitation to buy any mutual fund units/securities. These views alone are not sufficient and should not be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions and estimates included here constitute our view as of this date and are subject to change without notice. Neither SBI Mutual Fund / SBI Funds Management Limited / SBI Mutual Fund Trustee Company Private Limited, nor any person connected with it, accepts any liability arising from the use of this information. The recipient of this material should rely on their investigations and unlike the traditional investment avenues like PPF, NSC, Bank Fixed Deposit, investment in mutual funds is subject to market risks. Hence, the performance of these asset classes is not strictly comparable.