The general rules of mutual fund withdrawal require investors to withdraw their returns as a lump sum. There is, however, an alternative to this withdrawal mode called ‘SWP.’ Know everything about SWP in mutual funds and how the government taxes your capital gains on opting for an SWP.
What is SWP in mutual funds?
The full form of SWP is a ‘systematic withdrawal plan.’ An SWP in a mutual fund helps the investor systematically redeem the investment amount from their mutual fund. SWPs do this by allowing investors to withdraw their money in instalments. A systematic withdrawal plan links your mutual fund investment to your savings account and regularly deposits your earnings to your account. Investors can either withdraw capital gains or a fixed amount.
What are the features and benefits of an SWP mutual fund calculator?
An SWP mutual fund calculator is an online tool that helps customers know what the value of their investments would have been if they had opted for the SWP feature Customers must enter – the total investment amount, the amount withdrawn per month, the frequency of withdrawal, scheme and the tenure of the investment. A systematic withdrawal plan calculator can therefore help you regularise your redemption of mutual fund returns. Here are the features and benefits of an SWP mutual fund calculator:
- Customers can access SWP mutual fund calculators online for free.
- An SWP calculator can help customers calculate the SWP surplus which they can reinvest in another investment scheme.
- You can input various values of withdrawal amounts in the SWP calculator to calculate the mutual fund investment’s maturity amount.
- SWP calculators are easy-to-use. The SWP calculator on ICICI Prudential AMC’s site, for example, is user-friendly and has 10 fields that render the calculations more accurate.
How much tax do we generally pay on mutual fund withdrawals?
Before understanding how SWPs in mutual funds are taxed, let us briefly resume the taxation system for a lump sum withdrawal:
- Capital gains earned through mutual fund investments are taxable. The tax levied on these gains depends on the type of fund and the holding period.
- For investments made in debt funds post 1st April 2023, the capital gains are taxed at income tax slab rates
- For investments made in debt funds before 1st April 2023, long term capital gains (LTCG) are taxed at 20% with indexation benefits and short-term capital gains (STCG) are taxed as per the income tax slab rate .
- LTCG earned via Equity funds are taxed at 10% if the capital gains exceed the ₹1 lakh mark without indexation. STCG is taxed at 15%.
Understanding the taxation of SWPs in mutual funds.
Investors must pay a different percentage of tax on SWP redemptions depending on the type of mutual fund. Here are the types:
- For debt funds: For debt funds, the taxation is as explained above.
- For equity funds: In the case of equity mutual funds, if your holding period is less than a year, the realised short term capital gains are taxed at 15%. If the holding period exceeds a year, however, the realised LTCG is taxed at 10% without indexation.
You must use an online SWP calculator before investing to plan for the systematic withdrawal of your returns in advance.