What is SWP?
In simple terms
SWP is the exact opposite of SIP.
In a SIP you
invest in instalments or EMI and create a Lump sum, in a SWP, you invest a Lump
sum and withdraw in Instalments or EMI.
Let us take an example:
Say, I have Rs.15
lakhs Lump sum. I invest the amount in a Debt Fund of a Mutual Fund. A Debt
Mutual Fund invests money in Bonds and Wholesale Bank Deposits (CD) and hence
is able to give a certain return without volatility. Though returns are not
guaranteed, a certain rate can be assumed-in the current circumstances, let us
assume 8% annual return. This means the monthly return is 0.6667%.
Let us assume
that I instruct the Mutual Fund for a SWP of 10000 every month – this comes to
0.6667%. In other words, what I get as a return, I am withdrawing every
month-so my principal amount remains the same.
Instead of
investing in a bond fund , I can also invest in a Balanced Fund where returns
could be 12-13% per annum, or Equity Fund giving 15-16 % - for a long term
horizon like 5-10 years. However, this return could fluctuate in the short term
of 1-3 years. If I need a guaranteed post-retirement I can remain invested in
the Balanced/Equity Fund for the long term while going in for Systematic
Withdrawal on a monthly basis. My monthly withdrawal amount needs to be aligned
with the type of Fund that I am initially investing in.
What about Taxation?
Debt funds will
be subject to short term capital gains (at the rate of your Income Tax) for a
period upto 3 years and long term capital gains beyond 3 years (20 % after
indexation)
Balanced and
Equity Funds will be subject to short term capital gains tax of 15 % upto 1year
but are
exempt from tax
beyond 1 year.
Let’s take an
example:
Fund : Debt Fund
Invested Amount
15,00,000
Investment Date
1/1/2017
Date of 1st
Withdrawal 1/2/2017
Assumed Annual
rate of Return: 8%
Monthly Rate of
Return: 0.6667%
SWP Instalment :
10000/ month
Income Tax Rate
10%
|
Date
|
NAV
|
Amount Withdrawn
|
Units withdrawn
|
Balance Units
|
Capital Gains
|
Capital Gains Tax
|
Value of Balance Units
|
|
|
|
|
|
|
|
10%
|
|
|
01-01-2017
|
10
|
|
|
150000
|
|
|
|
|
01-02-2017
|
10.067
|
10000
|
993.377
|
149006.623
|
66.228
|
6.623
|
1500001
|
|
01-03-2017
|
10.134
|
10000
|
986.798
|
148019.825
|
132.018
|
13.202
|
1500001
|
|
01-04-2017
|
10.201
|
10000
|
980.263
|
147039.562
|
197.372
|
19.737
|
1500002
|
|
01-05-2017
|
10.269
|
10000
|
973.771
|
146065.791
|
262.294
|
26.229
|
1500002
|
|
01-06-2017
|
10.338
|
10000
|
967.321
|
145098.47
|
326.785
|
32.679
|
1500003
|
|
01-07-2017
|
10.407
|
10000
|
960.915
|
144137.555
|
390.849
|
39.085
|
1500003
|
|
01-08-2017
|
10.476
|
10000
|
954.551
|
143183.004
|
454.489
|
45.449
|
1500004
|
|
01-09-2017
|
10.546
|
10000
|
948.229
|
142234.774
|
517.708
|
51.771
|
1500004
|
|
01-10-2017
|
10.616
|
10000
|
941.949
|
141292.825
|
580.507
|
58.051
|
1500005
|
|
01-11-2017
|
10.687
|
10000
|
935.711
|
140357.114
|
642.891
|
64.289
|
1500005
|
|
02-11-2017
|
10.758
|
10000
|
929.514
|
139427.6
|
704.862
|
70.486
|
1500006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital Gains Tax
|
|
427.6
|
|
Prasad wagle
Financial Advisor
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