To be sure, taxes will remain in the picture even in SWPs of mutual funds but in an extremely benign manner.
A SWP is in a way the exact opposite of a SIP. In SWP, the regular money, as determined by you, flows directly from your invested corpus to your bank account, on your pre-determined dates, regularly. Just like market lows and highs are averaged out in a SIP investment because you are not investing all at once, the same thing is applicable in SWPs too.
Since safety is a pre-requisite for most of SWPs, we are only talking about a SWP from the safe Debt Mutual Fund, though there is no bar on a SWP from an equity Mutual Fund also.
While most of the safe, Govt offered instruments mentioned earlier force you to lock-in your hard-earned money for years at length, there is no such lock-in when it comes to SWP in debt mutual funds. This maintains complete liquidity of your investments and that too in your control. You do not need to furnish a reason and fill an extra form to withdraw your own money! And in case you wish to increase, decrease, temporarily or permanently stop the withdrawal – you can do what you wish.
Coming down to a big surprise of Tax. Let us illustrate it with an example. Say you wish to invest Rs 15 Lakhs either in Senior Citizens Savings Scheme (SCSS), or Debt Mutual Funds. How would your monthly income be taxed?
Let us say, both give 7% interest per annum. See the big surprise in taxation below:-
Surprised? Kicking yourself for paying 15 times more tax all these years!
Why didn’t anybody tell you this?
Because you asked those who themselves didn’t know!
There must be a catch? Yes, there is.
The catch is that, like most other good things in life, you need to do some amount of research yourself or contact the right financial advisor to guide you.
Is it that Debt MFs are not safe? No. They can be as safe as you want. Invest in ‘Banking & PSU Debt Funds’ which primarily invest in Bank and PSU papers. Or go in for ‘Money Market Funds’ which only invest in Govt bonds, PSU bonds or highly rated corporate bonds of short maturity. And start SWP from there.
And there’s more – if you continue with SWP in Debt Funds for more than 3 years, your tax will further go down by at least 50%, generally more!
Contrast this with bank FDs, SCSS, PMVVY, PO MIS and the likes, where tax will never go down.
Hence SWPs of Mutual Funds give you Regular income of the amount that you want which can be varied as per your wish, at a frequency that you want and with tax at least 15 times lesser than other avenues. No need to tell you that tax saved is money earned… And all this while, you retain the flexibility to withdraw a bulk if you wish so.
Found the magic trick to get the best flexibility and tax saving on your regular income Now!