SWP in mutual funds lowers your tax massively. Why? Each withdrawal is part capital withdrawal and part gain. Only the gain is taxed.
Want steady cash flow and less tax in retirement? Systematic withdrawals can help.
With a systematic withdrawal plan, one can withdraw a fixed amount every year from a mutual fund. However, the tax benefits are maximised if the fund has less than 65% in debt.
What is SWP?
A Systematic Withdrawal Plan (SWP) allows you to withdraw a fixed amount from mutual funds at regular intervals while benefiting from tax efficiency. Unlike fixed deposits, only the gains portion of the withdrawal is taxed, while the capital remains untaxed — making it a more efficient way to generate steady retirement income.
Key Takeaways:
- Tax Efficiency of SWP
- Withdrawals are considered part capital, part gains, reducing overall tax liability.
- Funds with < 65% in debt enjoy long-term capital gains (LTCG) tax of 12.5% after a holding period.
- Read here: Understanding types of Mutual Funds
- Inflation-Adjusted Withdrawals
- One can increase their withdrawal amounts over time to keep pace with inflation.
- Example: ₹75,000/month today may need to be ₹1 lakh/month in a few years.
- Managing Market Volatility
Final Thoughts
A well-planned SWP strategy ensures a steady, inflation-adjusted, and tax-efficient income for retirees. By combining the right fund mix and a structured withdrawal plan, retirees can sustain their lifestyle while managing risks effectively.