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MF News Should you recommend SWP in equity funds?

Should you recommend SWP in equity funds?

Many investors, who were investing in dividend plans, are now considering shifting to SWPs post Budget.
Padmaja Choudhury Feb 20, 2018

The Union Finance Minister, Arun Jaitley, has proposed to impose a dividend distribution tax of 10% on equity funds in Budget 2018. This change has increased the demand for systematic withdrawal plan (SWP) among investors, who seek regular cash flow.

In fact, a few fund houses have come out with innovative products to increase the demand of their SWPs. While SBI Mutual Fund has introduced Bandhan SWP option for its mutual fund schemes, which enables an investor to remit cash at monthly intervals to immediate family members, Motilal Oswal Mutual Fund has also revised its SWP—Motilal Oswal Focused CashFlow plan—for some of its funds.

Let us see what advisors have to say about SWP in equity funds,

“As the dividends from equity funds will now be taxed at 10%, irrespective of the dividend amount, it may make SWP attractive for retired individuals, who require regular cash flows as it is tax efficient,” said Tejal Gandhi of Money Matters.

Nisreen Mamaji of Moneyworks agrees. “The budget has made SWP attractive vis-à-vis dividend option. In SWP, the tax will be deducted only if the gains exceed Rs.1 lakh, but there is 10% tax on dividends,” Nisreen said. She also said that investors should see SWP only as a temporary fix.

However, a few advisors have a different view on SWP. Suresh Sadagopan, of Ladder7 Financial Advisories, feels that SWP and dividend options are not comparable. “While SWP is beneficial in debt funds, the dividend option is suitable for equity funds such as balanced funds. Equity is a riskier product and setting up SWP in an equity fund could backfire on investors when markets turn bearish,” Suresh said.

Although Shifali Satsangee, of Funds Ve’daa, believes that SWPs will gather momentum from an industry perspective, she does not advocate cash flows from equity funds. “We never believed in advocating monthly cash flows from equity asset class for a regular/primary income since it is a volatile asset class,” Shifali said.


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1 Comment
Jobanputra · 7 months ago
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