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Withdraw Tax-efficient Happiness Post Retirement

Everyone has to retire one day. Some people retire at an early age or some retire at their death bed. Let’s directly switch on a product which will give not only income after retirement but also will help tax planning.

Systematic Withdrawal Plan is a facility for regular cash flow with the help of mutual funds. It gives the investor, the freedom to enjoy life one has always dreamt of post retirement. One can withdraw funds from existing mutual fund outlays at pre-set interludes, be it fortnightly, monthly, quarterly or even annually, which will create a regular cash flow for both certain and uncertain needs. One can plan investments and withdrawals with tax advantage. It gives an investor more potential to gain rewards over a span of time, as one withdraws happiness bit by bit.

A Systematic Withdrawal Plan is a divesture strategy that empowers one to redeem fund units in a planned mannerism, instead of a lump sum sale. Constructively, one can withdraw investments in parts, thereby spawning a rhythmic stream of inflows.

An SWP is the antipodal of a Systematic Investment Plan, wherein one invests in mutual funds in parts. Moving funds from savings to a better performing mutual fund scheme is a SIP, while in an SWP, the movement of funds is back into savings account from already made investments. Alike, investing in mutual funds is easy on the VSRK app, withdrawals are also simple and straightforward on the app.

To execute an SWP, one need to withdraw some part of your investment at periodic intervals. Withdrawal money from investment means selling off or redeeming a chunk of the units one holds. The number of units to be sold depends on the NAV on the date one makes the withdrawal.

The period to start SWPs from one’s own funds need to be conceived well in advance to get the complete benefits. It is advisable not to go for SWP in two conditions, first is when one has cash at hand or when markets begins its downtrend. During such times, one should put money to work to achieve preset goals of wealth creation.

Retirement, the phase of life when incoming paychecks halts, is considered as a favorable time to start an SWP. 

SWP acts as a rewards of the systematic investments made during working years. People generally ask a very complicated question that for how long the SWP will last? Ultimately the length of SWP is determined by two main factors. The first is the size of the corpus and the withdrawal amount is the second one. Principally, the progressive the frequency and amount pulled out, the swifter will be the rate of abatement of the corpus.

The uptrend performance of the markets are directly proportionate to milking higher amounts through SWP. Contrarily, if markets are showing downtrend, the radius of SWP may dwindle. Making systematic withdrawals using an SWP allows you to take advantage of rupee cost averaging. 

Tax implications of SWP

When any investor makes withdrawals via SWP, it allures taxes based on type of scheme. The tax incidence on SWP depends on FIFO method and the holding period.

SWP initiated from an equity fund in the 1st year of investment, it is coined as STCG. The amount will be taxed at the rate of 15%. Whereas, if initiated after 1 year of investment, it falls under LTCG. Long term capital gains are completely tax-free. We at VSRK always suggests to do an SWP from your equity fund investments upon completion of one year.

Risk averse investors investing in Debt funds shall note that the holding period for debt funds taxation is 3 years. Any SWP initiated from the debt fund within 3 years of investment, it is considered as STCG and when initiated after 3 years of investment, it falls under LTCG which are taxed at 20%. Additionally, you can get the benefit of inflation indexation.

Concluding the words, SWPs can heavily aid in unifying income needs post retirement. In order to achieve the most of blessings, VSRK helps to plan SWP according to your requirements and tax incidence.

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