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Though both are based on mutual funds, they are designed for different goals.
ELSS helps you save tax and grow your money over time. (Representative Image)
In today’s changing financial world, having a steady and tax-friendly income is important, especially for retirees and people who want extra earnings. Two common investment options for this are the Systematic Withdrawal Plan (SWP) and the Equity Linked Savings Scheme (ELSS).
Both are mutual fund-based, but they work differently. SWP helps you get regular payouts, which is useful if you want a stable income. ELSS, on the other hand, is mainly for saving taxes and growing your money over time.
Knowing how each works can help you choose the right one for your regular income needs.
What is a Systematic Withdrawal Plan (SWP) And Its Benefits
A Systematic Withdrawal Plan (SWP) lets you take out a fixed amount of money from your mutual fund investment at regular intervals—like every month, three months, or a year.
It’s a good option for people who have a lump sum saved up and want to receive regular income without withdrawing everything at once. The money that stays invested can still grow in the market, while the part you withdraw gives you a steady cash flow.
Key benefits of SWP
– Provides regular income without withdrawing your entire investment.
– Offers flexibility in choosing the withdrawal amount and frequency.
– The remaining investment stays invested and continues to earn returns.
– More tax-efficient compared to interest from traditional savings options.
– Helps avoid the need for bulk withdrawals or market timing.
– Useful for retirement, education expenses, or long-term financial goals.
– Can be paused, changed, or stopped anytime based on your needs.
SWPs give peace of mind by turning your investment into a stable income, especially during retirement or uncertain times.
What is an Equity Linked Savings Scheme (ELSS) and its Key Benefits
An Equity Linked Savings Scheme (ELSS) is a mutual fund that mainly invests in stocks and offers tax benefits under Section 80C of the Income Tax Act. It’s usually used to grow your money over time, not for regular income. However, after the 3-year lock-in period ends, you can start taking out money in parts to create a steady income.
Key Features of ELSS Mutual Funds
– Equity-based: At least 80 per cent of the fund is invested in stocks, offering high growth potential.
– Diversified portfolio: Investments are spread across sectors and market caps to reduce risk.
– Tax benefits: Up to Rs 1.5 lakh investment qualifies for tax deduction under Section 80C.
– Short lock-in: Has a 3-year lock-in period, shorter than most other tax-saving options.
– Market-linked returns: Returns depend on stock market performance—can be high but risky.
– Flexible investment: Open-ended fund; you can invest any time, but withdrawals are allowed only after 3 years.
– No maximum limit: You can invest any amount, but tax benefits apply only up to Rs 1.5 lakh.
Systematic Withdrawal Plan vs Equity Linked Savings Scheme
For regular and stable income, SWP is generally better suited than ELSS, which is more focused on growth and tax savings.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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