Regular Income from Mutual Funds

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Do you want a Regular Income?

If investors want regular cash flow from their investments the automatic choice for many are bank fixed deposits or postal deposits. However, declining interest rates on these schemes have made investors worry about their future income needs.

Mutual funds have a solution for this, called SWP. What is SWP in mutual fund? SWP or systematic withdrawal plan is a mutual fund investment plan, through which investors can withdraw fixed amounts at regular intervals, for example – monthly/ quarterly/ yearly from the investment they have made in any mutual fund scheme

The investors can choose a day of the month/quarter/year when withdrawal can be made and the amount credited to investors bank account by the AMC.

Important points to note before putting money in SWP

1. Minimum time horizon should be 5 years. Since Mutual Funds are market linked investments subjected to volatility.

2. Start withdrawing funds after 12 months. Why? Withdrawals before 12 months will attract short term capital gain tax of 15%. To avoid this, you can start the SWP after 12 months and in that case capital gains can be tax free if less than 1 lakh

3. You can diversify here as well. Instead of investing in one scheme go with 3. Start SWP from each one of them in successive months. Like Mutual Fund 1 SWP in January, MF 2 in Feb and MF 3 in March. This way you make sure your investment is appreciating more and you have more corpus when you stop withdrawing.

Why SWP is better than Real Estate?

Real estate is a very illiquid investment. Selling real estate may take up to 3-6 months or even more. Plus, real estate investments attract 20% capital gain tax

Why SWP is better than Dividend Income?

Dividend income is very uncertain and does not guarantee a fixed cash flow. On the other hand it is taxable in the hands of the receiver as the per the tax slab which can be as high as 30%
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