T-SWPs allow tax efficient monthly withdrawals

Fidelity Investments Canada Limited will soon offer a unique tax-efficient cash flow service designed for investors seeking to supplement their income from investments. Fidelity’s Tax-Efficient Systematic Withdrawal Plan, or T-SWP enables investors to receive monthly cash flow from their mutual fund investments on a tax-deferred basis. T_SWP is the latest of Fidelity’s offerings to give investors and their investment professionals a choice of tax-advantaged investment solutions.

T-SWPs provide investors with monthly cash distributions through an investment in any one of Fidelity’s three balanced funds included in the new refund series T: Fidelity Canadian Balanced Fund, Fidelity Canadian Asset Allocation Fund and Fidelity Global Asset Allocation Fund. Their strong historical performance combined with their growth and income investment objectives make these funds ideally suited for this type of cash flow program.

Like traditional systematic withdrawal plans (SWPs), TSWPs are also intended for non-registered assets. The cash flow from T-SWPs will be composed primarily of return of capital (ROC) which, for tax purposes, can be paid to investors without triggering immediate tax consequences. T-SWPs are more tax- efficient than fixed income funds or regular SWPs because the portion of T-SWP cash flow classified as ROC is generally tax-deferred until the units are sold. T-SWP may be suitable for an investor who wants to use non-registered investments to supplement their income and prefers to minimize the applicable taxes today and defer them to some point in the future.

The T-SWP monthly cash flow rate is different from and should not be confused with the return or yield on a mutual fund. The rate aims to achieve a balance between the tax-efficiency of ROC and the potential for capital preservation and growth. At launch, investors using T-SWP will receive a monthly cash flow of approximately $0.10 per unit or 8% of the starting NAV of $15.00. It is important to note that $0.10 per unit is not guaranteed and will be adjusted from time to time. The aim is to keep the cash flow rate in the range of 7.5% to 9% of the Net Asset Value (NAV) each year, though this range may fluctuate with the actual NAV.

"With interest rates at record low levels, investors who depend on interest-bearing investments for their income are looking for ways to supplement current flows," says Wilfred Vos, Vice President of Product development. "However, they also need to ensure they keep their tax bills in check while they do that. T-SWP allows them to use mutual funds for a regular payout of tax-advantaged income, while also providing them with the opportunity for capital appreciation. This new solution can help them meet the need for cash flow in the most tax-efficient manner".

Series T also offers the benefits of the multi-series structure available at Fidelity. Investors can switch between Series A and Series T within the same fund without triggering a tax-consequence. They can also choose to use a combination of Series A and Series T to meet their investing and income needs.

Invest Wisely: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The average annual compound returns include changes in unit value and reinvestment of all distributions and do not take into account sales, redemption or optional charges or income taxes payable by any investor that would have reduced returns. Mutual funds are not guaranteed, their value changes frequently and past performance may not be repeated.