Dividend VS SWP: The Better Choice

Systematic Withdrawal Plan or SWP is typically an alternative of dividend fund investment wherein, investors can withdraw a fixed sum at prefixed intervals. Both the sum of money and the frequency of withdrawal can be set by the investor of SWP. The investment option of SWP works effectively when an investor has accumulated a sum that is more in worth than what they intend to withdraw. While Dividend mutual funds are a type of funds wherein the investors receive dividends at specified intervals by mutual fund companies. Such dividends are realised gains and declared by fund schemes. The realised gains are accrued through profits made by selling off shares and its frequency is pre-set by each scheme.

Perks of SWP over Dividend

Take a look at the following to understand what gives SWP an upper hand when compared to dividends:

  • Guaranteed Fixed Returns: SWP ensures investors fixed returns at specified intervals and tends to have a good track record in the same. This further ensures that the investors will be able to receive the repayment of their investments along with additional gains. But in the case of mutual funds with dividend option, investors would receive an income that is subjected to a dividend set by a certain scheme in which the investor has invested in. The dividends earned are neither guaranteed nor fixed, which makes the earnings uncertain for the mutual funds with dividend plan investors.
  • Taxation: When compared to mutual funds with dividend plans, SWP tends to be more tax-efficient. Up to Rs.1 lakh, LTCG earned through SWP is deemed tax free, while the dividends earned through mutual funds with dividend plans are taxed at the rate of 10%. This makes SWP an ideal investment option for investors with small investment sum. On the other hand, even though the investors are free from tax earned on the dividend on mutual funds, a mutual fund has to pay a dividend distribution tax of over 12.5% on it.
  • Market Risk: SWP offers the investors with an opportunity to lower the prevailing market risk at the time of redemption by providing freedom from the clutches of timing the market.
  • Financial Security of Loved Ones: SWP investor can extend their financial assistance to their near and dear ones by transferring money to them at their hour of need. Many financial institutes tend to extend a facility in which investors can withdraw money from their investments periodically and can transfer it to their loved ones who are registered as their beneficiary. This allows the investors to extend financial assistance to their near and dear ones and to help them become financially secured over time.

It is definitely true that some investors will find one of these better than the other but their collective view shouldn’t undermine you from choosing the best one for your financial need. Pay close attention to the features of each and compare their benefits before deciding a clear winner. To learn more about the functioning of SWP and its benefits, get in touch with our investment planners and fund managers.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not an indicator of future returns. Wealth Redefine is a AMFI registered Mutual Fund distributor – ARN - 85350

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