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Use systematic withdrawal plans to meet monthly cash flow requirements

Financial planners believe investors may be set up systematic withdrawal plan (SWP) from them mutual fund scheme to get a monthly cash flow, This is one of the most tax efficient Ways to supplement monthly cash flow and investors can use equity fundHybrid funds or a mix of both to meet their needs.
What is Systematic Withdrawal Plan in MF?
SWP is a facility offered by an open-end mutual fund scheme, where an investor can withdraw a fixed amount every month. Usually, on a predetermined date, the units of your plan are sold and the amount is transferred to your bank account. The remaining units in the plan continue to grow in line with the markets. Many retired individuals and senior citizens use this money to receive regular income and meet monthly expenses.
What are their benefits?
To begin with, an SWP is considered a more reliable tool for monthly cash flow than dividends. In the dividend plan of an equity fund, the amount and frequency of dividends as well as the date of dividend are not guaranteed, and depend on market movements and the profits available in the plan. For regular income SWP mutual funds are better than dividends as they bring stability in income.
Why is SWP considered tax efficient?
SWP is the redemption of units from the scheme – usually those which are equity-oriented for taxation purposes. Therefore, the tax treatment of each withdrawal will be the same as that applicable to equity-oriented funds. For units held for more than one year, long-term capital gains of 10% will be applicable, while for units held for less than one year it is 15%. Moreover, long term capital gains up to Rs 1 lakh in equity oriented funds in a financial year is tax free. In comparison, when you opt for dividend payout in a mutual fund scheme, the dividends paid are taxed as per your tax slab, which can go up to 30% for those in higher tax brackets. If the dividend amount exceeds Rs 5,000 in a year, the fund house deducts 10% TDS, reducing your cash flow.

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