SBI Mutual Fund Bandhan Systematic Withdrawal Plan (SWP) – Should you opt?

SBI Mutual Fund Bandhan Systematic Withdrawal Plan (SWP) – Should you optSBI Mutual Fund Bandhan Systematic Withdrawal Plan (SWP) – Should you opt?


After LTCG is imposed on Mutual Funds from 2018 onwards, every one is looking to escape tax on returns from mutual funds. One of efficient way to reduce tax on mutual fund returns and get regular income is using Systematic Withdrawal Plan (SWP) in Mutual Funds. SBI Mutual Fund has introduced Bandhan Systematic Withdrawal Plan (SWP) where one can do SWP to their family members. SBI MF Bandhan Systematic Withdrawal Plan (STP) is attracting investors in mutual fund industry with this unique feature. What is Systematic Withdrawal Plan (SWP)? What is SBI Mutual Fund Bandhan Systematic Withdrawal Plan (SWP) all about? How does SBI MF Bandhan SWP works exactly? What are the benefits from this Bandhan SWP plan from SBI?

Also Read: Best Mutual Funds to invest in Largecap Segment in 2018

What is Systematic Withdrawal Plan (SWP)?


Systematic Withdrawal Plan (SWP) is the facility given by to the investors in which he/she can withdraw a pre-determined amount from his existing investments in mutual funds at a pre-decided interval (monthly, quarterly, semi-annually or annually). This option gives a systematic withdrawal feature to the investor.

There are two types of SWPs:

1) Fixed withdrawal SWP – the amount withdrawn from the scheme is fixed.

2) Appreciation Withdrawal SWP – only the appreciated amount on investment is available for withdrawal on the SWP date.

What is SBI Mutual Fund Bandhan Systematic Withdrawal Plan (SWP) all about?


SBI Mutual fund Bandhan SWP is a scheme provided under few SBI mutual funds in which one can provide regular pay-outs to his eligible family members from the growth option of the investment. The beneficiary benefitting from this scheme has to be a resident individual of India. The SWP amount can be directly credited to the bank account of your spouse, parents, children or siblings, which allows you to give financial support to your loved ones with less effort.

How does SBI MF Bandhan SWP work?


Lets see how does this SWP works.

1) If you want to avail the facility of Bandhan SWP of SBI MF, you need to select an existing mutual fund investment or new investment under the growth option of eligible open-ended schemes.

2) You need to initiate Bandhan SWP facility specifying beneficiary details, withdrawal amount, duration and other details. One needs to submit certain documents like proof of address, identity proof, relationship proof, and bank account proofs.

3) The minimum amount of pay-out is Rs 5,000 and any amount there after. The minimum number of installments would be 12, i.e. one each month. One can select any of the dates from 1st, 5th, 10th, 15th, 20th, 25th or 30th of a month for SWP.

4) The SWP amount would be credited to beneficiary account on the selected date every month.

5) The mutual fund unit holder has the option to discontinue the facility anytime be submitting cancellation request to SBI mutual fund or SBI funds Management Private Limited or CAMS (R&T) office by at least 7 days prior to the next SWP date.

What are the Benefits from SBI MF Bandhan SWP?


There are certain excellent benefits offered by SBI mutual fund Bandhan SWP:

1) SWP is the most Tax Efficient: SWP in mutual funds is one of the most effective ways to do your tax-planning and earn potential returns. Any amount withdrawn within 1 year would attract short term capital gain of 15%. In case of investments in equity mutual funds for a period of more than a year, the long term capital gain is 10% (as per new LTCG 2018 guidelines). One would also get Rs 1 Lakh exemption from this LTCG and balance tax only payable.

In case of investment in debt schemes, the short term capital gain is added to the investor’s income and taxed as per their tax slab.  Long term capital gain in debt schemes are taxed @ 20% with indexation.  

2) Regular cash flow: It helps in generating a regular cash flow for the beneficiary of the investor. 

3) Good Retirement tool / steady income: If planned well on time, SWPs can give you a steady flow of income when most needed. They can prove to be a useful tool for attaining long term financial goals like a steady income on one’s retirement or managing child’s education expenses.

Also Read: Top 10 Mutual Fund Schemes to invest from various sectors

SBI MF Bandhan SWP explained with an example


Mr. Ramachander Rao has invested Rs 18 Lakhs in one of SBI MF with Bandhan SWP option on 1st January, 2015 and SWP amount is Rs 15,000 per month. Here is how the investment would be grown month on month and necessary tax implication. Here the LTCG is not considered as it would be within Rs 1 Lak exemption limit. If the amount is high, then LTCG of 10% over and above Rs 1 Lakh needs to be considered as tax liability w.e.f. 1-Apr-2018.  This example also indicates how much tax is applicable with SWP option Vs a simple bank FD option (who is in 30% tax bracket) indicating the tax benefit one would get by choosing SWP.

Example of SBI MF Bandhan Systematic Withdrawal Plan SWP

What is the income tax to be paid with this SWP?


As per gift tax rules of 2017, there is no Gift tax as such gift is given to the family members. However, tax on any income generated on the Bandhan – SWP amount (over and above capital) will be borne by the beneficiary depending on his tax liability.

How SBI MF Bandhan SWP is most tax efficient feature?


Here is the complete example on how this feature works and the tax implication. One should note that for first 1 year, the returns would be 15% tax (STCG) and after 1 year it would be 10% (LTCG) over and above Rs 1 Lakh LTCG. Means, even if the LTCG for the year is below Rs 1 Lakh (apart from principal/capital amount), the income tax is zero. If the LTCG is over and above Rs 1 Lakh, one need to pay 10% of the it as tax. Means, literally the tax implication would be almost nil above 1 year. For detailed computation on LTCG, one should go through this article.

SBI Mutual Fund Bandhan Systematic Withdrawal Plan (SWP) – Should you opt?


Bandhan SWP is an effective solution to tax problems as any fund transferred to immediate family members is considered as gift under tax law and does not attract any taxation. However, tax on any interest income generated on the Bandhan – SWP will be borne by the beneficiary as per his tax liability.

If you are in higher tax bracket of 20% or 30% and looking for a good retirement option, you can invest in good mutual fund schemes (SBI Mutual Fund Scheme or any other scheme) and do SWP where you can save good taxes. If you are looking for gifting regular payouts to your immediate family members, you can invest in some of the good SBI Mutual Fund Schemes and opt for SBI MF Bandhan SWP feature.

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Suresh

SBI Mutual Fund Bandhan Systematic Withdrawal Plan (SWP)

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