Dividend or Systematic Withdrawal Plans (SWP) remain important instruments to get regular monthly income for retirees or pensioners.
Most mutual fund schemes provide a dividend option. In this case, mutual funds declare a certain dividend out of profits periodically, which may be monthly or annually. Dividends are not reinvested back into the holdings, however.
Also, the net asset value (NAV) of the plan reduces to the extent of the dividends paid.
If tax implications are to be considered, then dividends get added to the income. Therefore, it is advised not to opt for a dividend plan in case the individual falls under the higher tax bracket category.
For such individuals, SWP is an ideal option, though. SWP allows investors to get a fixed amount at regular intervals from their investments. Withdrawal can happen on a monthly, quarterly, half-yearly, or annual basis.
To gain a regular return, an investor may choose to withdraw money by redeeming (or liquidating) a few units in a periodic manner. The timing and quantum of withdrawal need to be set in this regard.
Also, it ensures that the investment goal remains unaffected by withdrawing systematically rather than the entire amount all at once. In addition, investors can use the SWP calculator to determine the fixed withdrawal amount from their investment while considering the interest earned.
It is possible to execute SWP in equity, debt, and hybrid mutual fund schemes. SWP can be a good source to make relatively tax-efficient transactions as per requirements. It, therefore, remains an effective mode of taking out money for retirees and pensioners.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.