BNP Paribas MF introduces mySWP to aid investors

Why it makes sense for advisors to recommend mySWP in growth plan instead of dividend plan?

There is a segment of investors who may be seeking monthly payouts from their investments. For this, one of the relatively simpler choices is to opt for the dividend option. The new finance budget 2020 proposes the abolishment of the Dividend Distribution Tax (DDT) and clubbing of the dividend income with the taxable income for tax calculation purpose. The tax payable for the same shall be on the basis of the income tax bracket in which the investor falls. For investors who are in higher tax brackets (especially higher than 10%), investing in the dividend option needs to be reconsidered.      

In order to address the investor’s need, we are launching ‘mySWP’ - a facility through which the investor can get fixed monthly payments (by redeeming units bought with the original lumpsum investment), while paying tax on only the capital gains.

For equity oriented schemes, capital gains above Rs. 1 lakh are taxed at 15% for short term (<1 year) gains and 10% for long term (> 1 year) gains (STCG /LTCG), with no indexation.

For example, let’s look at an illustration of mySWP option of 10% p.a. for the invested amount assumed to be Rs.10,00,000, paid out monthly.

The illustration given above is only to depict how the taxation will work under this facility. The investors are requested to note that returns mentioned above are only to explain the tax implication. There is no guarantee/assurance of the returns/performance of the scheme.

Assumptions :

1. The illustration above is only to depict the tax implication of investing in mySWP on basis of tenure of investment i.e. short term or long term and does not indicate assurance of any returns from the scheme/facility

2. In the above illustration, it is assumed that the market returns are linear @ 10%. The market returns mentioned above is only to depict the impact of capital gain in mySWP facility. There is no assurance that the scheme/facility will perform or generate any defined rate of return. The market returns could fluctuate depending on various factors and the tax implication shall change accordingly.

3. It is assumed that the scheme pays out a defined dividend of Rs.8333 per month. The dividend amount considered in above illustration is only to depict the tax implication on dividend income if invested in a dividend option, not considering any short term or long term gains/loss thereon. There is no assurance that the scheme will payout/declare the dividend.

4. The illustration has considered only 12 monthly payouts and for like to like comparison dividend payout amount considered is same as SWP amount.

5. The tax implication is assumed for a retail individual investor assuming the investor’s taxable income is between Rs. 2 cr to Rs. 5 cr and tax rates are inclusive of cess and statutory levies, if any. Tax implications could be different for different type of investors hence investors are requested to consult their tax advisor in this regard before investing.

6. The above example does not take into consideration exit load, if any.

BNP Paribas MF has come out with ‘mySWP’. How it is different from other SWPs in the industry?

mySWP proposes to provide fixed monthly payments from the first month of investment, by redeeming the units bought through the original lumpsum investment. (It may be prudent to highlight here that we also do not have exit loads on our equity/hybrid schemes for redemptions of under 10% of units within 12 months of date of allotment [with the exception of BNP Paribas Arbitrage Fund]. For more details on applicable exit loads of the schemes, please visit www.bnpparibasmf.in). We, under mySWP, have also given investors two choices of withdrawal i.e. 8% and 10%, for them to choose basis their requirements. Basis the chosen option and the cost value of the original lumpsum investment by the investor, the fixed monthly payout amount is determined and paid out. The amount paid out shall also depend on the account balance of the investor.

What are the benefits of MySWP? Why should distributors recommend their clients to go for mySWP?

mySWP is aimed at providing regular monthly payments to the investor. It provides not just the flexibility to redeem 8% or 10% of original cost of investment, annually, but also 4 withdrawal date options for those monthly payouts for better investor ease. Moreover, the monthly payout value remains the same, irrespective of the movement in market value of the original investments/ part redemptions/ further subscriptions, subject to the availability of original account balance.

What are the eligible schemes for mySWP?

This facility is currently being offered under BNP Paribas Large Cap Fund, BNP Paribas Mid Cap Fund, BNP Paribas Multi Cap Fund, BNP Paribas India Consumption Fund, BNP Paribas Focused 25 Equity Fund, BNP Paribas Substantial Equity Hybrid Fund and BNP Paribas Arbitrage Fund.

Click here to view the riskometer and product labeling for the schemes.

mySWP facility is available wef Mar 02, 2020.

What are the withdrawal dates in MySWP?

The withdrawals can be scheduled for the 1st or 7th or 15th or 25th of the month. (If the withdrawal date falls on a non-business day, the next business day will be considered for this purpose.)

Which category of investors should look at opting for MySWP?

We believe that this facility can be considered as ideal by investors who are in a tax bracket higher than 10% and are looking for a fixed monthly payout from their investments, while staying invested in capital markets for the long term.