Systematic Withdrawal Plan Vs Dividend Option in Mutual Fund


Compare Mutual Fund Scheme – Systematic Withdrawal Plan vs Dividend Option

Most of time People are confusing with Mutual Fund terminology. Systematic Withdrawal Plan is one of them its also famous with SWP shortform.  before Compare Mutual Fund Scheme lets see both Systematic Withdrawal Plan and Dividend option bullet points

Whats Systematic Withdrawal Plan ( SWP ) ?

  • SWP its option in mutual fund where you can withdrawal fixed amounts from your investment at regular interval as specified by you
  • its Help to meet regular income requirement.
  • you can opt this by one time SWP mandate process
  • you can cancel anytime
  • Best option for Retirement fund looking person

Dividend Option in Mutual Fund ?

  • Dividend – Profit distributed to investor by dividend
  • Mutual Fund Scheme can have multiple dividend option  – Monthly , Quarterly , Annual Dividend
  • Dividend re- investment option also available in mutual fund schemes
  • Best tool for Retired person for regular income to meet day to day expense
  • Dividend Tax – free – in hand of Investor
  • Debt Fund – Equity fund more then 35% Debt ration need to pay DDT ( Dividend Distribution Tax ) before paying Dividend to Investor

Systematic Withdrawal vs Dividend Option ?

  • Fixed Income : In SWP amount are fixed and set by investor whereas in Dividend option Dividend declared by Mutual fund AMC. – also not assured amount and frequency of payment of Dividend
  • Taxation Point of view: Dividend is tax free if they comes for Equity Oriented Scheme where equity holding more then 65% but if its comes from Debt mutual fund then its DDT ( Dividend distribution tax ) applicable.Whereas SWP pay-out form redemption from mutual fund that why capital gain tax applicable if withdrawal before 1 yr – equity scheme.
  • Long Run ? : SWP is base on redemption thats why if you redeem amount more then mutual fund yearly return then over period of time your investment become NIL whereas Dividend dont face this type of issue.

Working Method ?

  • Systematic Withdrawal Plan –  Assume that you have 1000 units & you want to start a monthly SWP of Rs 10000. Assume that the NAV on the first SWP date is Rs 1000. The AMC will redeem 10 units (Rs 10,000 divided by NAV of Rs 1000) You will still be left with 990 units and the value of investment will be Rs 990,000 (Rs 100 X 990).
  • Dividend Option-  Assume you have 1000 units. mutual fund scheme (AMC) declares a dividend of Rs 5 per unit; you will receive a total dividend of Rs 5,000.

Conclusion : Investment Decision is base on Risk profile and Fund requirement – SWP is good option for whose looking monthly fixed income to meet day to day requirements whereas Dividend option are good option who are looking income from his investment with investment intact for future. if you are new in Financial planning or investment in mutual fund ask us or consult your investment advisor before investing

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