SWP vs Dividend Plan for regular income after retirement:Everyone needs regular income after retirement. To meet this need, investors consider several options, including Systematic Withdrawal Plan (SWP) and Dividend Plan. Both these methods are useful in earning regular income. But there are many important differences between them. Let us know which option can prove to be better for you after retirement.
What is Systematic Withdrawal Plan?
Systematic Withdrawal Plan (SWP) is a scheme in which you can withdraw a fixed amount from your mutual fund at fixed intervals. This scheme is suitable for those who want regular income from their investments. In this, you can withdraw money on monthly, quarterly or yearly basis, which meets your financial needs. While the remaining amount remains invested.
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Advantages of SWP
- In Systematic Withdrawal Plan, investors can decide themselves when and how much money to withdraw.
- SWP is considered a good way to get regular income after retirement.
- Through SWP, you only have to withdraw the amount you need. The rest of the amount remains invested, on which returns are generated.
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What is a dividend plan?
In the dividend plan, the profit earned on the mutual fund scheme is distributed among the investors by the fund house. In this, the dividend received by the investor depends on the performance of that mutual fund. Therefore, the amount of dividend and the time of payment is not fixed in advance. It is completely based on the market conditions and the profits of the fund.
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Difference between SWP and Dividend Plan
- In SWP, investors themselves decide how much amount will be withdrawn and how many times, whereas in dividend plan it depends on the performance of the fund.
- In SWP, the risk is low due to regular withdrawal of money, whereas in dividend plan, the instability of dividend may increase the risk.
- In SWP, tax exemption is available on long term capital gains (LTCG) up to Rs 1.25 lakh in a year, whereas no such exemption is available in dividend plan. The investor has to pay tax on the income from dividend.
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What is better SWP or Dividend Plan?
If you want regular and stable income, then SWP is a better option because in this you can control your income yourself. Whereas in dividend plan you have to depend on the performance of the fund. Apart from this, SWP is also better in terms of keeping the risk low, because in this you get a fixed amount regularly, whereas the dividend received in dividend plan depends on the market situation. If the profit in the scheme decreases or there is a loss, then the payment of dividend may reduce or even stop. SWP is also more beneficial in terms of tax benefit, because there is no income tax on long term capital gain (LTCG) up to Rs 1.25 lakh in a year. If there is more profit than this in a year, LTCG tax is levied at the rate of 12.5%, whereas the dividend received under the dividend plan has to be taxed as per the slab rate. But before making any investment decision, do understand that just like Systematic Investment Plan (SIP) in Mutual Funds, Systematic Withdrawal Plan (SWP) returns are also not fixed. Therefore, before investing in it, understand the risk associated with the scheme thoroughly and only then take any decision.
(Disclaimer: The purpose of this article is only to provide information, not to recommend investment in any scheme. Take any investment decision only after getting complete information and taking the advice of your investment advisor.)
