Dividend(IDCW) vs SWP(Systematic Investment Plan) Which one to choose

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First of all, the regular income option is good only for retired people, otherwise, it is always better to choose the growth option and compound your money as long as possible. 

When it comes to regular income from a mutual fund, there are two options are available, dividend options and SWP. 

Many consider dividend options for regular income, however, we advise investors to opt for the SWP option based on the below benefits.

The flow of income is fixed: 

The people who choose the dividend option expect fixed regular income every month can be disappointed hearing this the frequency and amount of dividends are not fixed.

On the other hand, in SWP once the instruction is given, you receive the fixed amount at a chosen date.

For example, if you choose 50000 per month SWP on the 10th of every month, you will get a steady fixed inflow every month till the time you stop the standing instruction.

Flexibility:

In the dividend option when and how much to pay depends on the fund house. If one wants to increase the cash flow that flexibility is not available.

In the SWP, you have the flexibility to increase the cash flow every year.

Taxation:

The dividends received to the investors are taxed as per income slabs. If someone falls under the highest tax bracket needs to pay more tax in this option.

In the case of SWP from an equity fund, the capital gain after redemption will be taxed 15% if the short term and 10% if the long term over Rs.100000. 

If the SWP is from a debt fund, the long-term is taxed at 20% indexation and the short-term is taxed as per income slab. This is the only case where taxation is similar to SWP and dividend options.

Conclusion: The dividends are paid from the profit and NAV is reduced after that. SWP scores better than the dividend option when it comes to a fixed amount of cash flow and date. Hope this will help the investor to take a wise decision when it comes to regular income. 


Disclaimer:

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of future performance of the schemes. The Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes and the same is subject to the availability and adequacy of distributable surplus. Investors are requested to review the prospectus carefully and obtain expert professional advice with regard to specific legal, tax and financial implications of the investment/participation in the scheme.


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