How to optimise my SWP returns from balanced and liquid funds

You have sent a very interesting query.

Yes, we suggest balanced funds as they invest in both - equity and debt and yet get the taxation of equity funds. That means, if you are withdrawing through SWP route after one year, then all the gains received from each SWP withdrawal is totally tax free under long term capital gains.

But having said the above, you can also do SWP from other equity fund categories like, large cap funds, mid and small cap funds or diversified equity funds. In fact any category of funds based on your risk taking appetite.

With regards to your query about withdrawing from balanced and liquid funds, my suggestion is below which I am trying to explain through an example -

Let us assume you are not sure about how the markets will play out in near future and therefore, invested 70% of your total corpus in balanced funds and 30% in liquid funds. Say the amount is Rs. 10 Lakhs. Therefore, you have invested 7 Lakhs in balanced and 3 Lakhs in liquid funds.

From next month onwards you started SWP from liquid fund as you want to withdraw from balanced fund only after 12 months to avail the long term capital gains tax benefit.

You are withdrawing Rs. 1,750 each month from liquid fund assuming return of 7%.

Post completion of 12 months you may stop SWP from liquid fund and start withdrawing from balanced fund if you find that balanced fund has given you positive returns. If it is so, you may withdraw Rs. 5,800 per month assuming 10% return from balanced funds (on the conservative side).

Now, in any case if the market falls after you have started SWP from balanced fund, you can stop this SWP and again start SWP from liquid fund.

Therefore, you can follow this method by monitoring your portfolio regularly and take a call based on the market conditions.

If you want to follow the above steps then you should not submit more than 6 months request for SWP withdrawals to the AMC. However, even if you have submitted SWP withdrawal request for a longer period, you can write to the AMC and stop the SWP within 15 days.

Yes, to withdraw from liquid fund and balanced fund you need not invest in the same AMC. It is your choice, you can invest in the balanced fund of one AMC and in the liquid fund of another AMC.

Hope the above helps. Thanks for writing to Advisorkhoj.