Systematic Withdrawal Plan route can meet financial needs of your loved ones effectively

Recently one of my friends shared his agony, that how he missed his loved ones, who stay far away in his home town. He felt miserable for not being able to take care of his parents and siblings in time of their need, owing to paucity of time.

I told him how he could take the Systematic Withdrawal Plan (SWP) route offered by mutual funds to meet the financial needs of his loved ones effectively.

How to gift using MFs

Set aside a lumpsum amount as an investment in select MF mutual fund scheme. For instance, you could consider investing in growth option of an open-ended scheme of any MF and set an SWP in the same, in order, to provide regular income for your loved ones.

How does SWP work

SWP enables direct regular payout in your beneficiary’s registered bank account - it can be either your child, sibling, spouse or a parent, by just giving one-time instruction to the fund house.

In order to avail the facility you need to have an investment in growth option of an open-ended scheme of a MF. Sign up for the SWP facility, specifying beneficiary details, withdrawal amount, tenure, etc. Submit the form along with the beneficiary’s Know Your Customer (KYC) - establishing the relationship status and bank account proof, post which the payouts will be directly credited to the beneficiary’s bank account.

Taxation

As the money transferred to the beneficiary account is treated as gift, there is no tax if the beneficiary and payee are related. However, the interest earned on the money transferred would be taxable to the beneficiary.

You as an investor will have to pay taxes as follows. In investments in equity-oriented schemes, for withdrawals in the first year, short-term capital gains (STCG) tax @ 15% would be applicable. For withdrawals after the first year, long-term capital gains (LTCG) tax @ 10%, over and above Rs 1 lakh capital gains per financial year would be applicable. In investments in debt-oriented schemes, withdrawals made within the first three years will be subject to STCG tax, as per your income bracket. In withdrawals after three years, LTCG tax would be applicable at 20% after allowing indexation benefits.

By: DP Singh
(The writer is ED & CMO (Domestic Business) of SBI Mutual Fund)

This story first appeared in DNA Money: Meet financial needs of your loved ones in a systematic manner