Planning for a steady income after retirement should be a key goal for everyone who earns a salary. Even after the salary stops, expenses and lifestyle continue. To ensure a regular income after retirement, there are two mutual fund options: Systematic Withdrawal Plan (SWP) and Dividend Plan. Both have unique features and benefits, depending on your needs and tax-saving priorities.
Systematic Withdrawal Plan (SWP): A Source of Regular Income
SWP is a mutual fund option that allows you to withdraw a fixed amount at regular intervals from your investment. This plan is especially useful during retirement when you need to gradually spend your savings.
How SWP Works:
- Investors set a withdrawal schedule (monthly, quarterly, semi-annually, or annually).
- The Asset Management Company (AMC) sells units and transfers the amount to your bank account on the chosen date.
- Investors can withdraw only the gains, keeping the principal investment intact.
Benefits of SWP:
- Tax Savings: Only the gains part of the SWP withdrawal is subject to Capital Gains Tax.
- Flexibility: You can change the withdrawal amount and schedule as per your needs.
- Long-Term Corpus Management: Your investment can last longer as you make partial withdrawals.
- Market Growth Advantage: The remaining investment benefits from potential market growth.
Example: If you invest ₹10 lakhs and withdraw ₹10,000 monthly through SWP, only the gains portion of the withdrawal is taxed. If ₹2,000 of the ₹10,000 is gains, then tax applies only to the ₹2,000.
Dividend Plan: Regular but Unstable Income
Under the Dividend Plan, the fund house distributes a part of the mutual fund’s profits among investors. This is an attractive option for those who want regular income but can depend on market performance.
How Dividend Plan Works:
- The AMC pays dividends to investors based on the fund’s profits.
- The dividend amount depends on the number of units and the fund’s performance.
Benefits and Limitations of Dividend Plan:
- Benefits:
- Simple and straightforward option.
- Investors receive income at regular intervals.
- Limitations:
- Volatility: The amount and timing of dividends are not fixed.
- Taxation: Dividend amounts are fully taxable and added to your tax slab.
- Impact on Principal: Dividends may include a part of the invested principal.
Example: If the fund pays a ₹100 dividend and you are in the 30% tax slab, you will pay ₹30 as tax.
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Systematic Withdrawal Plan Vs Dividend Plan: Which is Better?
According to experts, SWP is a more stable and tax-efficient option for regular withdrawals.
Tax Benefits:
- Dividends are fully taxable.
- In SWP, only the gains part is taxable.
Volatility:
- Dividend amounts and timing depend on fund performance.
- SWP amounts are fixed.
Long-Term Management:
- SWP helps your savings last longer.
- In the Dividend Plan, the principal investment might deplete quickly.
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Top-5 Retirement Funds Performance
In the last three years, the top-5 retirement funds have provided an average return of 11-16% to investors.
| Fund Name | 3-Year Return (%) | Total Value (₹) |
| ICICI Prudential Retirement Fund – Pure Equity Plan | 16.32 | 1,57,385 |
| HDFC Retirement Savings Fund – Equity Plan | 16.03 | 1,56,211 |
| ICICI Prudential Retirement Fund – Hybrid Aggressive Plan | 13.82 | 1,47,454 |
| Nippon India Retirement Fund – Wealth Creation Scheme | 13.27 | 1,45,326 |
| HDFC Retirement Savings Fund – Hybrid Equity Plan | 11.97 | 1,40,380 |
Conclusion
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If you want a stable and tax-efficient income after retirement, SWP is a better option. It allows you to get regular income as per your needs and keeps your investment relevant for a longer period.
However, if you can depend on market performance and fall in a lower tax bracket, the Dividend Plan can be a simple option.