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Ramalingam Kalirajan |7122 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Apr 30, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Hari on Aug 05, 2023Hindi

Good Afternoon I am going to retire next month. After retirement, my major income is going to be from SIP /Mutual funds , which i have invested in the last 7 yrs. My consultant is advising SWP . Can you please explain me about SWP and what is tax liability on SWP. My funds are growing at 16+ percentage and please advise what is the safer percent I can withdraw monthly.

Ans: SWP stands for Systematic Withdrawal Plan, which is a facility offered by mutual funds to investors to withdraw a fixed or variable amount from their investments at regular intervals. With SWP, you can set up periodic withdrawals from your mutual fund investments, providing you with a regular income stream post-retirement.

Here's how SWP works:

Frequency and Amount: You can choose the frequency (monthly, quarterly, etc.) and the amount you want to withdraw through SWP. This amount can be a fixed sum or a variable amount based on your requirements.
Redemption Units: When you initiate an SWP, the mutual fund will redeem units from your investment to generate the specified withdrawal amount. These units are then liquidated, and the proceeds are transferred to your registered bank account.
Tax Implications: The tax liability on SWP depends on the type of mutual fund and the holding period. If you withdraw from equity-oriented funds (funds with more than 65% equity allocation), the gains are taxed as per capital gains tax rules. For debt-oriented funds, the gains are taxed based on the holding period: short-term gains (less than 3 years) are taxed at your applicable income tax slab rate, and long-term gains (more than 3 years) are taxed at 20% with indexation benefit.
Withdrawal Amount: The safer withdrawal percentage depends on various factors such as the expected returns of your mutual fund investments, your financial needs, and your risk tolerance. Generally, financial advisors recommend withdrawing 2% to 4% of your investment corpus annually to ensure sustainable withdrawals without depleting your capital too quickly.
Before initiating an SWP, it's advisable to consult with a financial advisor or tax consultant who can provide personalized guidance based on your investment portfolio, income requirements, and tax implications. They can help you determine the optimal withdrawal strategy to meet your retirement income needs while minimizing tax liabilities and preserving your investment capital.

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