When it comes to managing your mutual fund investments, understanding Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP) can make a significant difference to your financial goals
SWP allows you to withdraw a fixed amount from your mutual fund investment at regular intervals, creating a steady income stream from your accumulated corpus.
STP enables systematic transfer of fixed amounts from one mutual fund scheme to another in the same fund house, typically from debt to equity funds, helping you enter markets gradually.
Advantages of SWP:
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Tax benefits - Usually when customers want a fixed income from their mutual fund, they opt for MF schemes with a dividend payout option. This income is taxed at an individualās tax slab rate. However, in case of SWP, only the gains are taxed as per LTCG (12.5%) or STCG (20%) in case of equity funds
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Income adjusted for inflation - Your rest of the corpus continues growing as per market returns. Your corpus lasts much longer than a traditional FD corpus
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Control - You can pause, resume, stop the SWP anytime providing much more control over your income requirements
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Ideal in a bull run - Helps pocket healthy profits in a bull run, while the rest of the portfolio continues growing
Advantages of STP:
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Safety-net - You can choose to transfer units gradually to an equity plan in a phased manner, while rest of your portfolio continues to earn interest in the debt scheme
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Portfolio rebalancing - Conversely, you can choose to enter debt fund safely in a phased manner if you have quite high exposure to equity mutual funds
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Emotional discipline - You remove the anxiety of ātimingā the market and waiting for the perfect entry
How to make the right choice?
Choose SWP for retirement income or meeting regular expenses while maintaining investment growth. Choose STP for systematic portfolio rebalancing. Both strategies bring automation and discipline to wealth management.
We, at upstox, are constantly working towards making the right investing products available for you. We are working with the regulator to make these products available for our customers across all AMCs. Do let us know in the comments if you are keenly interested in these products!