Owing to this change, all non-tax payee investors like trusts and retired persons, the traditional investors in monthly income plans stand to lose out returns on account of this dividend tax of 11 per cent. For the non-tax payer, the systematic withdrawal plan of an open-end debt funds proves be smart way of reducing his tax outflow. In a systematic withdrawal plan, an investor can invest a lumpsum amount and give the fund a standing instruction to redeem a fixed amount worth of units at defined periodicity, say monthly, orquarterly. The following illustration shows the result of systematic withdrawal plan on growth plan of Birla Income Plus, the largest private sector open-end income fund.

In case you chose the systematic withdrawal plan and you do not fall in any tax bracket, your tax liability will be nothing. In case you fall into 30 per cent tax bracket, you would have paid only Rs 210 as tax on your income by way of short-term realised gain. Systematic withdrawal plan is an ideal way to meet your regular income needs with greater tax efficiency. Moreover, after a year, withdrawal will be eligible for indexation benefit, which will attract long-term capital gains at 20 per cent and will reduce the tax outgo.

Besides their tax efficiency, these funds are also suited for the convenience and ease of investment they provide being, available throughout the year, with a choice of monthly, bi-monthly and quarterly withdrawal options, no with holding and dividend tax, and easy liquidity of principal as the there is no-lock-inperiod.

Value Research