Dividend vs SWP: Which is a better option to get regular income from mutual fund funding?

As mutual fund (MF) investments are capital investments and are topic to market dangers, it’s mentioned that it is best to spend money on MF that a part of money, which you’ll spare for a long run. This would scale back the chance of capital loss.

However, the aim of investing in a mutual fund (MF) scheme relies on the monetary objective of an investor.

If you need to make investments for accumulating money to fulfill a long-term monetary objective, it’s better for you to spend money on equity-oriented MF schemes for a minimum of 5 years. More the funding interval, the decrease would be the danger of shedding money and better would be the probability of getting superior returns.

If the funding motive is to get inflation adjusted, tax environment friendly returns within the brief time period, it’s better for you to choose a appropriate debt-oriented MF scheme.

However, if you would like to have a regular return from the MF funding – be it from short-term or long-term funding – you’ve got two choices – both to go for the dividend payout option or to select the option of Systematic Withdrawal Plan (SWP).

Dividend Payout

Asset Management Companies (AMCs) pay periodic dividends to the traders opted for the dividend payout option, as soon as adequate beneficial properties get collected in a scheme to pay. The timing and quantum of dividend depend upon the buildup of beneficial properties.

Systematic Withdrawal Plan

To get regular return, an investor might select to withdraw money by redeeming some items in a periodic method. The investor wants to set the timing and quantum of withdrawal.

Dividend Payout vs SWP

To know which one to go for, it is best to know the distinction between the 2 choices on completely different parameters:


Compared to dividend payout, SWP is extra versatile. This is as a result of beginning from the day of funding, the dividend is paid on a scheme solely when the AMC decides to pay relying on accumulation of beneficial properties on the scheme. Depending on the profitability, the period and quantum of dividend might differ.

On the opposite hand, an investor might select from when he/she wants to begin the SWP and in addition how a lot to withdraw in what number of days/months. Depending on efficiency of the scheme, an investor might improve or lower the withdrawal quantity in addition to the period of periodical withdrawal.


Dividends are actually handled as income within the hand of the receiver. So, the quantity of dividend payout will probably be added to the overall income of the investor. If an investor doesn’t have taxable income – together with the dividend acquired – he/she doesn’t have to pay any tax on the dividend acquired. However, for an investor within the high tax bracket, 30 per cent tax plus cess and surcharge, if any, will probably be payable on the dividend income.

The quantity withdrawn below SWP is topic to capital acquire tax. If the withdrawal is made out of the items of debt-oriented MF schemes bought inside the previous three years, the acquire is handled as short-term capital acquire and the quantity withdrawn is added to the income of the traders and handled equally as dividend payout. If the withdrawal is made after three years from the date of buy of the items of debt-oriented MF scheme, the acquire is handled as long-term capital acquire and 20 per cent tax is levied after indexation.

In case the quantity is withdrawn inside one year from the date of funding in an equity-oriented MF scheme, the acquire is handled as short-term capital acquire and 15 per cent tax is levied on the acquire. However, if the quantity is withdrawn after one year from the date of funding in an equity-oriented MF scheme, the acquire is handled as long-term capital acquire and 10 per cent tax is levied on the acquire quantity in extra of Rs 1 lakh in a monetary year.

So, when it comes to flexibility and tax advantages, SWP has a bonus over the dividend payout option.

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