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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection

An investor wants regular monthly income and is willing to accept that the amount is not assured. A distributor recommends a Systematic Withdrawal Plan (SWP) from a growth option rather than a monthly IDCW option. What is a key reason this may be preferred?

SWP is often preferred because each withdrawal is a redemption taxed only on its capital gain portion, while IDCW payouts are taxed in full as income at the investor's slab rate. SWP does not guarantee returns, is not tax exempt and may attract exit load.

  1. ASWP guarantees a fixed return on the investment
  2. BSWP redemptions are taxed only on the capital gains portion of each withdrawal, while IDCW is taxed fully as income at slab rateCorrect
  3. CSWP withdrawals are always exempt from tax
  4. DSWP avoids exit load on all units

Explanation

In an SWP each withdrawal is a redemption, so only the gain component is taxed (at capital gains rates), whereas IDCW received is fully taxable in the investor's hands at slab rate. SWP gives no guarantee, is not tax exempt, and exit load can still apply.

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