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Mutual fund queries answered by Suresh Sadagopan, Founder, Ladder 7 Advisory

SWPs in equity mutual funds may not be a good idea.

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Last Updated: Aug 21, 2018, 09.55 AM IST
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I am 32 years old and carrying out SIPs in the following nine schemes: Rs 7,000 in Axis Long Term Equity (ELSS), Rs 5,000 each in Kotak Standard Multicap, L&T Emerging Businesses Fund, ICICI Prudential Bluechip Fund, SBI Bluechip Fund, Motilal Oswal Multicap 35 Fund, HDFC Hybrid Equity Fund, and Rs 2,500 each in Mirae Asset Emerging Bluechip Fund and Franklin India Prima Fund. I have a moderate to high risk apetite. My goal is to build a corpus for retirement and for my yet unborn child. Should I continue to invest in these funds or switch to some other? I am also thinking of starting a new SIP of Rs 5,000 in the name of my child. Please advise.

— Hitesh Suri

SIPs worth Rs 42,000 worth of are going on in about nine funds. You also want to start another SIP of Rs 5,000 for your child’s benefit. That would make it Rs 47,000 in all in monthly SIPs. I would suggest that you continue your Rs 7,000 SIP in the ELSS. The rest of the Rs 40,000 can be distributed between Mirae Asset Emerging Bluechip Fund, ICICI Prudential Nifty Next Fifty Fund and SBI Bluechip Fund.

I have invested in the growth plan of one of the mutual fund schemes for the past three years. Investments were made as and when funds were available. Now the total amount invested till December 2017 is Rs 6 lakh. Now, I want to opt for systematic withdrawal plan (SWP) of Rs 10,000 per month, which means Rs 1.2 lakh per year, so that I will get the same amount as I invested in the next five years. Now as per finance bill, long-term capital gains tax of 10 per cent is applicable from 2018 onwards. My question is how is the LTCG to be calculated on the Rs 1.2 lakh I will get every year?

— Bhaskar Athavale

Firstly, I do hope that you have invested in a debt fund from which you would like to withdraw funds. Equity schemes are not appropriate instruments to set up systematic withdrawals from considering the volatility inherent in it. You will be able to withdraw whatever amount you set up as SWP. It is afterall redemption of your money. You should therefore set up SWP in such a way that the drawal is less than what the fund earns. LTCG is 20 per cent after indexation after 36 months as that has not changed. From your question, it appears that you may have invested in an equity fund from which you want to withdraw (where 10 per cent LTCG applies). If that is the case, I would suggest that you do not consider doing SWP from an equity fund for reasons mentioned already. LTCG is calculated on the difference in the price of redeemed units to the cost price.

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