Why SWP Is Better Than the ‘Dividend Option’
There is a live discussion in the tradingqna forum started by @Quantum_AMC , these are the things I learned from this discussion . If any thing I miss or mis understand plz do send via message . I will update here .
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Systematic Withdrawal Plan (SWP) offers more tax efficiency and control than the Dividend Option, especially after Budget 2020. Earlier, mutual fund dividends were tax-free in the hands of investors, but the 2020 budget shifted the tax liability to investors according to their income slab. This change made the Dividend Option inefficient for those in higher tax brackets. In contrast, SWP allows investors to redeem a fixed amount periodically from their mutual fund investments, where only the capital gains portion is taxed—and if held over one year (for equity funds), only at 10% for gains above ₹1 lakh, making it more tax-friendly. Furthermore, SWPs provide predictable cash flow, and investors retain control over the withdrawal frequency and amount.
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On the other hand, dividends are not guaranteed, as mutual fund houses declare them based on distributable surplus and market conditions. This unpredictability can disrupt cash flow planning, especially for retirees or those relying on periodic income. In comparison, SWP allows investors to customize withdrawals irrespective of whether the fund declares any dividend or not. Moreover, with SWP, the remaining corpus continues to stay invested and can grow, offering potential for compounding over time. This flexibility and control—combined with post-tax advantages—make SWP a superior choice for long-term income-seeking investors.
Refer discussion : Why SWP Is Better Than the ‘Dividend Option’ Post-Budget 2020
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Interesting retirement corpus discussion
The context of the TradingQnA post revolves around a user asking for guidance on how to invest ₹40 lakhs with the goal of building a ₹6 crore retirement corpus over 20 years. Contributors provided various strategies, emphasizing the importance of a sound financial plan. Notably, users stressed avoiding commission-based advice and focusing on behavioral aspects like curbing lifestyle inflation—highlighting that financial discipline can matter as much as investment returns.
An active forum contributor, @cvs , highlights that simply choosing between “safer” predictable investments or “riskier” high-return ones misses the bigger picture. A powerful third tactic: limit or avoid lifestyle inflation now (e.g., reduce discretionary spending) so you can either:
- Allocate more toward long-term investments, or
- Achieve your retirement goals with lower-risk products
This boosts compounding benefits and reduces the need for excessive risk-taking .
You can view the full discussion here: TradingQnA Thread
low-cost NAV ETFs
Are you a fan of low-cost NAV ETFs, or still exploring your options? We’re having an interesting discussion on low cost ETF offering — would love to hear your thoughts!
Discussion page : Why hasn't Zerodha launched a ₹10 NAV Nifty 50 ETF yet