Using SWP | Value Research Exits before a year attract short-term capital gains tax
Ask Value Research

Using SWP

Exits before a year attract short-term capital gains tax

I had a SIP running in Sundaram Select Focus since December 2008. I recently terminated it since the fund did not perform up to my expectations. I started a new SIP in Reliance Regular Savings Equity instead. Should I leave my money in Select Focus or withdraw it? I do not need the money right now so don’t want to do it. Alternatively, should I put it in a good large cap fund by way of a SWP?
Gurpiar Singh Sibia

We do approve of your selection of Reliance Regular Savings Equity. It is a good multi-cap fund. We are also in agreement with your observation concerning Sundaram Select Focus. The fund has disappointed by way of performance. You can certainly do a Systematic Withdrawal Plan (SWP) into any other good large-cap funds. The ones we recommend are DSPBR Top 100 Equity, IDFC Imperial Equity and Franklin India Bluechip.

However, when you do a SWP, you need to know that you will be charged an exit load for exiting before your investment has completed a year. You also need to know that you will be charged short-term capital gains tax if you exit before the completion of a year. Having said that, in your case, the redemptions will start with the ones you began your systematic investment plan (SIP) with. The investments that were made first, will be the first to be redeemed (First In, First Out - FIFO). So in that case, you will be redeeming (by way of a SWP) only after completion of a year of holding.

Have a different question in mind? Ask us

Other Categories