SWP stands for Systematic Withdrawal Plan. It is a facility that allows a mutual fund investor to withdraw from the scheme invested in at regular intervals. You can either decide on a fixed amount or withdraw to the extent your capital has appreciated in the timeframe. SWP is allowed in all open ended mutual fund schemes.
SBI has repackaged the Systematic Withdrawal Plan (SWP) as a solution called Bandhan SWP. Bandhan SWP allows the investors in iSBI MF schemes to credit the withdrawal amount to the account of any family member like mother, father, spouse, sibling or child. It is not a new product but an added feature.
What are the requirements for to facilitate Bandhan SWP in my SBI MF investment?
- The beneficiary should be KYC compliant or submit relevant documentation regarding proof of identity and address.
- Proof of relationship between investor and beneficiary should be submitted
- Cancelled cheque of the Bank account or a copy of the Bank Statement/Passbook of the beneficiary
- The investors opting for the facility need a written consent from the beneficiary for the pay-out to his/her account. In case of any objection, the investor will have to produce the written consent from the beneficiary within 30 days, failing which the facility shall be discontinued with immediate effect.
What are the key features?
- The minimum payout is Rs. 5000.
- The payout can be made only monthly.
- If you redeem all units of a scheme in which you have availed of Bandhan SWP, the facility will be discontinued. Bandhan SWP cannot be transferred automatically to another scheme.
What are the advantages of this facility?
- Bandhan SWP has the same advantages as a normal SWP plan. It allows for regular cash flow and is also tax efficient. Small withdrawals in the initial years might escape the tax net as it will be from the initial investment amount.
- This feature allows you to transfer a pre-determined amount from the MF investment to your loved ones at regular intervals. This ensures a regular income stream for them directly in their bank accounts.
- The amount given to loved ones will be treated as a gift.
- The usual capital gains tax depending on whether its long-term or shot-term and the type of scheme is applicable on the amount earned by the scheme
- It is a better option than MF dividends as dividends are taxable in the hands of the MF house and it means there is less for distribution.
- It offers convenience as you can directly credit the money to the person who needs it. It saves time and effort. At the same time, dependency is reduced as they get the cash directly.
Are there any disadvantages?
Investments in MF schemes are subject to risk. If the scheme does not perform well, the returns will be less or you will incur a loss. This means the amount to be given out may not be available.
Should I avail of the Bandhan SWP facility?
If you have investments in open ended SBI MF schemes and you want to give financial security to your parents, you can opt for Bandhan SWP.
If you need to support your sibling or spouse or children financially, you can opt for Bandhan SWP.
But it is important to invest in the right schemes so that your capital investment remains safe and you earn optimum returns.