Planning is an important aspect of life. Preparing a wireframe and keeping track of life is on everyone’s goal list. And money is one thing that needs the most of it.
That is why different instruments have been developed to manage the money for present as well as future use.
Investment is one such instrument of money. People invest for various reasons. However, growing money and securing the future are the two main objectives of investors.
Other such objectives can be financial goals, business development and to take better charge of the money they work so hard for.
Now, there are vehicles of investments. And investors need to make preferences wisely.
Stocks, mutual funds, bonds, and ETFs are the types, people like to invest in. Stocks and mutual funds are the most desired investment options by the people.
People can use various investment options but the most frequently used mutual fund investments are Dividend Mutual Fund (DMF) and the Systematic Withdrawal Plan (SWP). Both are buzzwords among the retirees.
What is Dividend Mutual Fund?
People invest in either growth oriented funds or dividend oriented funds.
Growth oriented investment is a type of financial instrument which primarily invest in the stocks of small-cap or new companies & this method focuses on capital appreciation.
On the other hand, dividend is the profit made by the company which is distributed among its investors.
Therefore, people who don’t like to risk their money or want their investment to yield quick results, opt for DMF.
It is the choice of the company to share the dividend with the investors. This being the reason, people invest in the stocks that have potential to pay regular dividends.
Dividend Mutual Funds are good to invest if you don’t want to risk your money or thrive for long run profit.
Since dividends are part of profits, DMF can become factors of risk as well. If the market is going through a bad phase then mutual funds might not be able to pay dividends to the investors.
What is Systematic Withdrawal Plan?
Systematic Withdrawal Plan in mutual funds is a type of investment where it allows the investors to withdraw from the invested fund every month. It is a regular source of income at a regular rate of interval, usually monthly.
SWP lets you manage your fund and this serves as a uniform side-income as well. It is a process that redeems the invested money as per the investor’s will.
You can choose to redeem a fixed amount of your investment on a monthly, quarterly, semi-annual or annual basis.
You can choose to redeem just the capital gains on fixed dates as well. It is an efficient way to manage your cashflow.
SWP is safe from any market fluctuations. Thus, bad market phase won’t affect your regular income.
How to start mutual fund investment with DMF?
First, it solely depends on the company whether it wants to pay dividend to the investors or reuse the profit for the company only.
Therefore, be sceptical about the funds you are investing in. You can seek help from financial institutions or independent financial advisors.
However, if you plan on managing your account on your own, you will need to collect information about investment and top mutual funds.
There are various platforms to start investing in mutual fund. You can get yourself registered with the AMC and start investing online.
You can use your Demat account or a Bank as an intermediary as well. There are Direct Plans as well which have been reformed by the government.
Furthermore, you need to visit the AMC office and get done with KYC. They will register your bank account and need a pan card, Aadhaar card, cancelled cheque and passport size photo for registration.
You will then receive your folio number which will help you make investments and receive dividends.
How to start mutual fund investment with SWP?
A Systematic withdrawal plan is primarily employed by retirees for a uniform cashflow or by the people who have fixed income and want to use it systematically.
First, you need to set up a demat account or register with AMC.
Then, you will need to choose a mutual fund and invest in it via bank account.
Most people choose SIP (systematic investment plan) for the purpose and then begin to withdraw the redeeming amount periodically.
The next step is to choose a withdrawal rate. The investor should be cautious and thoughtful about the withdrawing rate. This is the rate on which you will be receiving your fixed amount.
Hereafter, you will receive redeeming amount based on duration and withdrawing rate chosen by you.
The Bottom Line
Both the investment options can be a good choice for you. They have their merits and disadvantages.
It depends on your preferences that you should choose the investment option. If you want quick returns, you can go for DMF.
However, if you want a steady, regular income and don’t mind being aggressive with the money, SWP is a good choice eventually.