Now HDFC MF FMP Extends Maturity By 380 Days

Rs. 339-crore HDFC Fixed Maturity Plan – 1168 Days – February 2016 (1) was launched on Feb. 3, 2016. It has generated 9.5% CAGR since launch. Subsequent to the latest announcement of the rollover, the scheme shall mature on April 29, 2020. The existing maturity date of the scheme was April 15, 2019.

The reason for roll-over is not stated, but a close study of HDFC Fixed Maturity Plan – 1168 Days – February 2016 (1)’s portfolio shows that it has close to combined 20% exposure in two Essel Group firms.


Holding of HDFC Fixed Maturity Plan – 1168 Days 

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Almost 10% of HDFC Fixed Maturity Plan – 1168 Days – February 2016 (1)’s money is in debentures of Edisons Infrapower and Multiventures. Another 10% is in debentures of Sprit Infrapower and Multiventures. This means as much as 20% of the Rs 339 crore of FMP money is in these two Essel Group firms.

Essel Group hopes to sell a stake in Zee Entertainment. If the stake sale happens and money comes to Essel, everybody including lenders, goes back home happy with their promised amount. If the stake sale does not fructify by that deadline, lenders and Essel group promoters may have to arrive at a new deadline.

Choice for investors

Rollover will be done by written consent of investors till 5.30pm on April 12. Redeeming investors will be given full principal + interest ex of Zee exposure


Jana Small Finance Bank Offers Upto 9.6% Interest rate : Review and MF holding

Jana Small Finance Bank (erstwhile Janalakshmi Financial Services Limited) commenced operations as a non-banking finance company (NBFC) on March 4, 2008, and was later classified as a non-banking finance company-microfinance institution (NBFC-MFI). The bank received a licence to set up a small finance bank on April 28, 2017 and commenced banking operations on March 28, 2018. Jana Holdings Limited (JHL), a non-banking finance company-non-operative financial holding company (NBFC-NOFHC), holds a 45.37% stake in JSFB as on February 28, 2019.


JSFB has a diversified presence across 18 states and 2 union territories in India, with a portfolio of Rs.7,164 crore as on November 30, 2018. The share of the top 3 states of Tamil Nadu, Karnataka and Maharashtra was about 51% as on November 30, 2018. The bank raised Rs. 1,636 crore equity during FY2018 and Rs.601 crore during 11M FY2019 from existing and new investors.

For H1 FY2019, the bank has reported a net loss of Rs.1,291.8 crore on a managed portfolio of Rs.6,941 crore as on September 30, 2018. In FY2018, JSFB reported a net loss of Rs. 2,503.8 crore on a total managed asset base of Rs. 10,022.4 crore compared to a net profit of Rs. 170.1 crore on a total managed assets base of Rs. 15,730 crore during FY2017.


Credit challenges

Weak recoveries from harder overdue buckets continue to weigh down on asset quality – JSFB’s asset quality has remained weak with 90+ dpd3 at 31.7% (Rs.2,336.4 crore excluding write-off and Rs.3,264.4 crore including write-off) as on December 31, 2018 compared to Rs. 3,270.6 crore4 in March 2018 (Rs. 1,990 crores in March 2017) because of modest collections from the overdue buckets and limited impact of the various recovery programmes.

key financial

Outlook: Negative

The Negative outlook factors in the expected weakness in JSFB’ earnings and capital profile going forward. The ratings would be downgraded further if the bank’s recoveries and disbursements remain subdued thereby prolonging any meaningful improvement in its earnings and capitalisation, or if its liquidity profile deteriorates because of the bank’s inability to mobilise adequate external funding or deposits. The outlook would be revised to stable in case of a steady revival in its profitability indicators and improvement in its capital structure.

rating history

ratingMutual fund Holding of JSFB :

  1. DSP Credit risk Fund 08/07/2019
  2. UTI Unit link Insurance plan  26/04/2019
  3. Kotak Credit Risk  08/04/2019
  4. Kotak Medium Term   08/04/2019

Should you invest?

Like any other commercial bank, deposit of up to ₹ 1 lakh is insured by the Deposit Insurance and Credit Guarantee Corp. (DICGC), a subsidiary of RBI. DICGC has a list of insured banks on its website, and as of know, seven of the 10 small finance banks are listed on its website.

“The credit rating practices and mechanism of small finance banks might not be at the same level as that of an older public or private sector bank. So, I would be circumspect about these new age small banks as compared to the older banks, and hence would classify them as somewhat risky.


Finally, India’s first REIT ( real estate investment trust ) opens for subscription on March 18

India’s first REIT (real estate investment trust), Embassy Office Parks REIT plans to raise Rs. 4,750 crore from the market.

The REIT will open for subscription on March 18 and the bid process will close on March 20. The unit price for investment will be determined by the book building process.

According to the document, India’s office real estate market offers 7.5%-8.5% p.a rental yield.

Embassy Office Parks is a joint venture between Blackstone Group and Embassy Group. It holds around 33 million square feet of commercial properties spread across four metro cities Bengaluru, Mumbai, Pune and Noida. Currently, it has leased 95% of its total properties of which, 43.4% have been rented to Fortune 500 companies.


In December 2018, the portfolio had generated Rs. 1,611 crore of revenue from operations. It is expected to grow by 55.8% by FY2023, said the draft document.

Of the total sale offer, the Embassy Office Parks has allocated Rs.3900 crore for retail and institutional investors.

Of the 33 million sq ft, about 24 million sq ft is operational with 95 % occupancy, yielding a rental income of over Rs 2,000 crore annually. Another 3 million sq ft area is under construction and 6 million sq ft is in the pipeline.

The JV has top MNC clients in its commercial projects. Over 50 % of rent comes from Fortune 500 companies such as Microsoft, Google, Wells Fargo and JPMorgan.

What is a REIT?

REIT is an investment tool that owns and operates rent-yielding real estate assets. It allows individual investors to invest in using this platform and earn income.

REITs are listed entities that invest in income-generating properties and distribute at least 90 % of their income proceeds to unit-holders through dividends. After registration with SEBI, units of REITs will have to be mandatorily listed on exchanges and traded like securities.

Properties listed through a REIT are typically commercial assets that can generate steady and lucrative rental income. Even government-run buildings can be placed under REITs.

REITs offer investors, with Rs 2 lakh in capital, an opportunity to invest in the commercial real estate market. Like listed shares, small investors can buy units of REITs from both primary and secondary markets.

According to a CBRE- CII report, a successful REIT listing would prompt other prominent asset holding companies such as Xander, Brookefield and Canada Pension Plan Investment Board to issue their own offerings, thereby widening the real estate investment scenario in the country.


No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.


Check the factsheet regularly if you are invested in debt and balance funds

Many mutual fund investors are worried about their investments in debt mutual funds as the interest rate and credit risk worries gather momentum, especially those practising DIY ( Do-It-Yourself ) investing.

“New investors are trying to enter the debt/balance segment and investors who manage their portfolios by themselves have started wondering how they can safeguard their debt/balance fund investments. “There are no rules to eliminate the risk, but investors can try to minimise risk.” 

credit risk 1

Know the categories well :

We believe that if you are a DIY ( Do-It-Yourself ) investor, the least you should do is keep a check on where your schemes are investing. Fund houses send a factsheet on your registered e-mail id every month. “You should see the changes in the factsheet. Which instruments have been added to the scheme and which have been dropped? Educate yourself if you are doing it yourself.”

Quality of the portfolio :

Higher-rated instruments have lower chances of defaults. Check if your scheme portfolio is betting on lower-rated securities to earn better returns. “The allocation changes and the ratings of the instruments added in the portfolio should be monitored. AAA-rated securities have a rare chance of defaulting. An IL&FS type default is very rare in the market.”

Duration of the instruments :

Another risk that you want to refrain from taking is the interest rate risk. When the interest rates go up, the longer duration bond funds are hit the most and vice-versa. Mutual fund investors who do not want to take calls on the interest rate movements can opt for dynamic bond funds. “Duration funds or bond funds are susceptible to interest rate changes. Investors who do not want to take such risk should bet on schemes that hold lower maturity papers like short and ultra-short duration funds.”

Note: Mutual fund investments are subject to market risks read all scheme related documents carefully.


No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.


Follow the 5 simple rules to select debt schemes

The recent credit downgrades have unnerved mutual fund investors.

Follow the 5 simple rules to select debt schemes

  1. Invest in a fund matching your credit & interest rate risk appetite. Always factor in the possibility of default.

Rethink if, – AAA bonds < 50%

Duration > 2


2. Check how diversified is the debt portfolio. A 10,000 cr AUM is invested in just 20-30 bonds, or is spread across 50-80 bonds? This ensures basic safety through diversification. If there are fewer bonds, ensure they are all highest rated, else concentration increases risk.

3. Check the concentration risk of the portfolio especially in lower-rated bonds. High exposure in a single paper means, higher loss in case of default. A high % exposure, say 5-9%, in a very low rated paper, shows recklessness. Much more in multiple papers is indicates higher risk.

4. Check the levels of diversification across all the schemes of the mutual fund. That gives an idea of existence or otherwise of risk management across the fund house. That is a sign of a far greater sense of responsibility towards investors money, a sign of not being reckless.

5. While a fund, it’s fund manager & fund house selection is important, diversification across fund houses is VERY important. Even if a fund house conforms to your expectations today, there are no guarantees that it will continue to conform in the future.


Note: Mutual fund investments are subject to market risks read all scheme related documents carefully.


No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

Do your mutual funds have exposure to Essel Group?

Many investors are concerned about the impact the Essel Group fiasco will have on their mutual fund investments.

The Essel Group claims to have reached an understanding with lenders who hold pledged shares of the group’s promoters. This could arrest the decline in the Essel Group stocks. Group companies shares had plummeted 10-33% on Friday, triggered by reports of payment defaults and sale of pledged shares.


While the sharp fall in stock prices dented the NAVs of equity funds holding these scrips, there were fears that the crisis would spread to debt funds as well. More than Rs 8,000 crore worth of bonds and debentures issued by group companies is held by 150 debt mutual funds. Of this, Rs 6,329 is invested in 60 open-ended debt funds while the balance Rs 1,672 crore is in 90 fixed maturity plans (FMPs).

In a statement issued after the meeting with lenders, the Essel Group stated that it has been agreed that the no default will be declared due to the steep fall in price and there will be synergy and co-operation amongst lenders.

The Aditya Birla Sun Life Mutual Fund is the biggest investor, with an exposure of Rs 2,936 crore spread across 28 schemes. This is almost 37% of the total debt fund exposure to the Zee group. 

However, Aditya Birla Mutual fund is confident that the prices of these bonds and debentures will not be impacted. “These bonds are secure.” 

One scheme alone has Rs 1,288 crore invested in Zee group bonds. As on 31 December 2018, the Aditya Birla Sun Life Medium Term Plan held zero-coupon bonds worth Rs 720 crore issued by Sprit Infrapower & Multiventures Pvt Ltd. (credit rating A) and Rs 568 issued by Adilink Infra & Multitrading Private Ltd (unrated). The two holdings account for 12.5% of the fund’s total Rs 10,272 crore portfolio and are its top holdings.

Download (PDF, 16KB)

Another scheme, the Aditya Birla Sun Life Credit Risk Fund, held Rs 740 crore worth of zero-coupon bonds of Sprit Infrapower & Multiventures Pvt Ltd. and Adilink Infra & Multitrading Private Ltd. The two holdings account for 9.2% of its portfolio, with Spirit Infrapower as its top holding (5.62%). The Aditya Birla Sun Life Dynamic Bond Fund has over 8% of its Rs 5,136 crore portfolio invested in Sprit Infrapower bonds.
In percentage terms, Baroda Mutual Fund schemes have the largest exposure to bonds issued by Zee group companies. As on 31 December 2018, the Baroda Credit Risk Fund had Rs 168 crore invested in zero-coupon bonds of ARM Infra & Utilities Pvt Ltd. and Cyquator Media Services Pvt. Ltd. Together, this is 17.7% of its Rs 947 crore portfolio.

The silver lining for debt fund investors is the new rule that allows side pocketing of distressed assets. It is an accounting method that separates illiquid bonds from quality investments in a debt portfolio. If the Zee group bonds crash, open-ended debt funds may cushion themselves by putting them aside in a separate side portfolio. The fund’s NAV then reflects the value of the liquid assets, with a separate NAV assigned to the side pocket assets based on their estimated value.

However, this will not apply to fixed maturity plans (FMPs) where the scheme has a limited tenure and bonds are held till maturity. HDFC Mutual Fund, the second largest investor in Zee group debt with an exposure of Rs 1,196 crore, has most of its exposure through FMPs. It has invested over Rs 900 crore in bonds and debentures through 38 FMPs. Some FMPS have over 20% of their assets invested in Zee group companies.

Note: Mutual fund investments are subject to market risks read all scheme related documents carefully.


No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

More pain seen in NBFC sector in next few months

The 50 largest NBFCs are looking for Rs. 700 billion in just the current month. The sector needs Rs 1.2 trillion in the current quarter and will have to refinance 40 percent of its debt over the next 12 months.

In India, crises move slowly. We’ve known for years that the state-controlled banks that dominate the financial sector were groaning under the weight of bad loans. For years, though, the government successfully kicked the can down the road. All those assets haven’t been accounted for yet, the banks haven’t been fully recapitalized, the bankruptcy process isn’t working to schedule, yet somehow the banks are still chugging along.

Frustrated entrepreneur sleeping on the table with a bomb of financial crisis on his head. Concept of bankruptcy and financial crisis

India’s luck may be about to run out. The country’s shadow banking sector — dominated by what officials call “non-banking financial corporations” or NBFCs faces something of reckoning over the next month. Ever since a leading NBFC  Infrastructure Leasing & Financial Services Ltd., or IL&FS defaulted on some of its debt recently, the entire sector has been starved of funds. The amount shadow banks managed to raise through the sale of commercial paper short-term debt fell by 65 percent in October, according to Edelweiss.

union liquid

cp paper 2IL&FS ran into trouble because it was borrowing short to lend long. Given that such behavior is common throughout the sector, everyone is worried about whether shadow banks will be able to roll over their debt. The 50 largest NBFCs are looking for Rs. 700 billion in just the current month. The sector needs Rs 1.2 trillion in the current quarter and will have to refinance 40 percent of its debt over the next 12 months.

principle ultraSome of the bigger shadow banking players, particularly in housing finance, might find that the liabilities due to be paid are higher than their assets maturing over the same period. The sector is in dangerous territory.

For India and its government, this poses a real problem one that will get worse if a few big NBFCs collapse because there’s insufficient liquidity in the market. While shadow banks account for at most 15 percent of lending in India, they seemed like safe and attractive destinations for the savings of the middle-class. They’ve also become central to infrastructure finance over the past few years. If a lack of funds slows down the real estate and infrastructure sectors and thus construction blue-collar jobs, too, would be lost. This isn’t the sort of thing any government wants just months before an election.

BOI AXAThat’s why all sorts of bailout schemes are being planned. Some of them might be worth trying. Most, though, look like bad ideas.

For instance, India’s largest bank, the State Bank of India, has promised to buy Rs. 450 billion of shadow-banking assets and banks have been allowed to lend more to NBFCs. There’s nothing inherently wrong with a bank buying distressed assets, as long as we can be sure it’s being done in the bank’s best interests and not because bureaucrats in New Delhi think that state-run banks’ money is theirs to command. If people fear that banks aren’t being sufficiently discriminating when buying NBFC assets, they’d have even more reason to worry about the asset quality of those banks. In other words, bailouts could spread contagion, not contain it.

What’s more problematic, perhaps, is the government’s insistence that the Reserve Bank of India opens up a special window to lend money to the sector as it has for banks. Think of this as being something like what the Federal Reserve did during the 2008 crisis when it expanded its historic role and chose to become a lender of last resort even to shadow banks.

dsp creditThe RBI is resisting; it doesn’t think there’s a systemic risk here. It also thinks it can do better than the central banks of the West did in 2008. While the latter may have prevented a crisis, finance got off too easy. The RBI seems convinced that India’s shadow banks need to clean up their act and they won’t if they get access to easy money now. If a firm or three end up going under, so be it. That would be better than using public money to create a dozen more failures such as IL&FS over the next few years.

This is a genuinely brave and praiseworthy stand. One of the great wonders of Indian economic history is that so few firms are allowed to fail in an economy that constantly under-performs expectations. That’s one reason few sectors manage to rise above mediocrity: The market is never really allowed to work.

This crisis may be an opportunity to change that mindset. India needs a vibrant shadow banking sector; there are some things that regular banks just can’t or won’t do. But the country won’t get one by coddling institutions that are borrowing at the wrong tenures and lending to the wrong sectors.

By Bloomberg

Under performance of Equity Mutual Fund against their respective Benchmarks

A large number of equity mutual funds in the country has underperformed against their respective benchmark indices over the last five years.

Around 44% of the open-ended diversified equity mutual fund schemes failed to beat their benchmark in the last year. Nine schemes underperformed their benchmarks by over ten percentage points. 31 schemes underperformed by five to ten percentage points. There are 275 open-ended diversified equity schemes.

MFEven the schemes that managed to beat their benchmarks in the last year, 26 schemes outpaced their benchmark by only up to two percentage points.

Moving to specific categories, out of 65 large cap schemes, 30 schemes underperformed their benchmark.

What are Dynamic Funds? ( Video )

The mid-cap category was the worst hit, with 62 percent schemes underperforming. We had a total of 34 mid-cap schemes on our list. 

Around 50 percent multi-cap schemes failed to beat their benchmark. Four in seven small-cap schemes remained under-performers.

Sectoral schemes, which are considered risky because of their focused sector exposure, had 11 under-performing schemes out of 49 schemes in total.

We have compiled a set of top under-performing funds in one-year period across equity categories given in the following table.


The scorecard reveals a majority of large-cap equity funds failed to beat the S&P CNX Nifty, the benchmark for large caps, with 53.33 percent underperforming their benchmark over the last five years, 57.14 percent during the previous three years and 52.63 percent over the previous year.

The percentage of actively managed equity funds underperforming the benchmark indices has seen a declining trend since December 2010. However, their number still exceeds those outperforming the index.

Retirement Fund : What is a Systematic Withdrawal Plan ( VIDEO )

Many actively-managed equity mutual fund schemes have failed or struggled to beat their benchmarks. Always place a lot of emphasis on consistency of performance while choosing a scheme to invest. As a rule, ignore short-term scorching performance while picking a scheme.

However, data from the diversified funds and equity-linked saving schemes (ELSS) suggests a percentage of funds outperforming the benchmark in both one-year and three-year period is stable as compared to five-year period.

Active managers of equity-oriented hybrid funds have also fallen behind benchmarks over both the one-year and five-year time frames.



No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

Do Not Compare Yourself with Other Investors While Making Investment

There is very fine line said by Dan Jensen that, ‘The only goal is to be better than myself, my biggest competition is with no one but myself only.’ that simply means that one should not compare himself with others in any aspect of life but try improving his own work and skills and same applies while making an investment and expecting positive results from it.

In other words, comparing yourself with others can be a very futile and caustic act as we all have our own different goals and skills and we all are not in the same race, our ways to make investments are dissimilar.

Have you ever seen Warren Buffett making any investment with Carl Ichan strategies or Peter Lynch making any investment in David Tepper’s style? The answer is a clear No because they all have their own rules and strategies to make investments and create positive results out of it. Some ways of investing are for long-term, some are short-term, some are for value, some are for growth, some bet on the change and some bet on the things that won’t. It’s even more captivating to hear the different opinions from the two value investors looking at the same company. So, the key point is not making a comparison with others instead compared you with yourself one or two years ago.


Also, one must keep in mind that to be a good investor he must follow more discipline and try to make less investment decision as possible. That simply means you have to believe in your investment decisions that will do good without your involvement. Not comparing yourself to other investors and their performance is not enough for you; you must not worry about other’s opinion also. If you are a contrarian investor, you should not even listen to and worry about people’s opinion about yourself. If you listen to their opinion, it is because you are having more confidence in them than you have in yourself.

Download our first e-book on Higher education costing in foreign countries.

Here are three key points that can help you in making beneficial results from the investments-

Believe in yourself

If you see yourself as a successful investor in future, you must believe in the rules made by you for you. You must have proper planning and strategies for different investments, and you have to believe in that philosophy and the strategies even during tough times. The thing is if you are not willing to take risks and you do not have courage and patience then you can never be an investor.

Do not make unnecessary investments

It is mandatory to know that every investment is not going to give you positive results, so you do not have to invest in all kinds of opportunities or environment. For example, in 1999 the technology is in boom period but Warren Buffett did not make any investment in it, and people said, ‘that’s it for Buffett, he’s too old now.’ And at that time Warren said that ‘I don’t do tech because I don’t understand it and I think it is not for me. I am going to sit it out.

Have the guts to face the failure

The more you get experience in making investments you will come to know that discipline is a must in investing. Sometimes you have to sit out and watch other investors making money in the exact investments that you have already passed on. It is not necessary to follow the trend and invest in everything; you only have to make investments in the things you really know about and then stick to your process with confidence.

Retirement Fund : What is a Systematic Withdrawal Plan ( VIDEO )

If you are planning to take a sabbatical from work or are retiring soon, you may be looking at different investment options that give a regular income. Usually, a lump sum is invested in getting regular fixed amounts later. Popular products include post office monthly income scheme, Senior Citizens Savings Scheme and monthly income plans (MIPs). A lesser-known option is the systematic withdrawal plan (SWP) in mutual funds. Recently, some funds have even removed the exit load on SWPs if you were to withdraw up to 15-20% in the first year, to encourage people who want to start investing in this instrument. Here is a look at what an SWP is.

What is SWP?

Systematic Withdrawal Plan (SWP) is a service offered by mutual funds which provide investors with a specific amount of payout at a pre-determined time interval, like monthly, quarterly, half-yearly or annually.

How is SWP better than the dividend option?

An SWP is more reliable than a dividend plan when it comes to regular income. In the dividend plan of an equity fund, both the quantum and frequency of dividend is not guaranteed, and it largely depends on market movements and the profits that the asset management company makes.

swp 4
Mr. A invests Rs 15,00,000 in SWP and Mr. B invests the same amount in a bond/deposit scheme with 8% interest. Assuming SWP amount is kept at Rs 10,000 per month or Rs 1,20,000 per year or 8% of the investment amount. Also, let’s assume a return 8% in monthly investment plan or SWP. Both Mr. A and Mr. B are in 30% tax slab and continue to get SWP and interest income for ten years respectively.

In the above example, Mr. A would have paid Rs 37,537- as capital gains tax, while Mr. B would be liable to pay Rs 3,60,000 as a tax on interest income. Over a ten years period, they would have got Rs 12,00,000 as SWP amount or interest income respectively. If funds are not withdrawn even after ten years, Mr. A would have paid only 3.12% tax while Mr. B would have paid 30% tax on Rs.12,00,000 if the inflation rate is 6% per annum.

In another example, Mrs. Joshi has retired with Rs. 1,03,00,000 as separation benefit. Her children are well settled, and she stays alone. The corpus received on retirement has to be invested suitably, and it is decided that 45-50 percent of the total amount will be invested in equity while the balance (50-55 %) will be invested in debt instruments.

Rs.56,00,000 is invested in fixed income instruments to generate regular income. The balance Rs 47,00,000 is invested across different diversified equity schemes. At present, since Mrs. Joshi does not require any additional fund over and above what she receives, her fixed income savings are sufficient. However, over a period, say two years later, the returns from her fixed income schemes can become inadequate to cover her requirements. It is at this juncture that Mrs. Joshi can opt to avail the Mutual Fund SWP option. This withdrawal from her equity-based funds will be tax-free, and this is an additional benefit received.

Another example,




Benefits of Mutual Fund SWP

From the above examples, it is amply clear that the SWP option of the Mutual Funds has its definite advantages. The two major gains derived from this option are again dwelt upon:

Mutual Fund SWP and Regularity:

Mutual Fund SWPs’ provide the assurance of getting a fixed amount at a pre-determined time frequency. Among the other options, frequency and pay-out of the dividend-paying monthly income plans are not certain or fixed beforehand. Sometimes, if the fund cannot generate sufficient profits, you might have no dividends to be paid. Hence every month you will have different amounts coming in and some month there might be no money received. SWP is a definite boon in such a scenario.

Inflation Protection through Mutual Fund SWP:

Most of the fixed income instruments do not insulate the investor against the inevitable effect of inflation. The Mutual Fund SWP scores in terms of generating returns to keep up with inflation especially is one opts for the equity fund route.

What are Dynamic Funds? ( Video )

Mutual Fund SWP and Tax advantage

In case of investments in equity mutual funds for a period of more than a year, the long-term capital gain is exempted. Only short-term capital gains are taxable at the rate of 15% on withdrawals from equity mutual funds investment within one year. Whereas in case of investments in debt schemes, the short-term capital gain ( an invested period is less than 3 years) is added to the investors income and taxed as per their tax slab. Long-term capital gains in debt schemes are taxed at the rate of 20% with indexation. In Systematic Withdrawal Plan (SWP), the tax is paid only on the gains made due to the NAV movement and not on the principal part in the withdrawals making the overall tax incidence lesser.

Unlike SWP, in traditional investment options, the entire gain is taxed according to the investors’ tax bracket (the highest currently being 30 %) considering if the investor falls under the highest tax bracket.

Regular supplemental income

The option of SWP in the mutual fund can help you by providing a steady source of income from your investments. This is especially useful for those who need money when their cash flow comes to a halt like a retirement, or at a time when supplemental income becomes a necessity due to the altered circumstances in life.

Meet financial goals

If planned well ahead of time, SWPs can provide a steady flow of money when most needed. They can therefore be linked to long term financial goals, such as providing a steady income in one’s retirement years or managing your child’s educational expenses.

If planned well ahead of time, SWPs can provide a steady flow of money when most needed.

Is your MF holding an Adani power Debenture ?

Who can use SWP?

Systematic Withdrawal Plan (SWP) can be utilized by those who are planning for their retirement in the coming years. Usually, the large amount of money that one receives at the time of retirement is invested in traditional savings instruments which attract income tax at the normal rates. Instead, they can make a lump sum investment in mutual funds with SWP facility. In this case, along with earning capital appreciation on the invested amount, he/she can receive a fixed amount monthly. It will help you in getting a regular income like salary even after retirement.

However, the use of SWPs may not be restricted to retirees alone. It is also useful for middle-aged professionals who have the responsibility of their family. They can use SWP option to get a constant source of fund for their dependents. They can plan it for their child’s educational expenses. They can even plan for a steady source of money for their retired parents.

One can easily make all the necessary calculations before investing.

A mutual fund SWP is designed keeping in mind the needs, interests and financial goals of the investors. By judiciously using tools like Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP), you can meet your financial goals without having to go through the hassle of timing the markets and making wrong financial decisions that may cost you dearly and throw you off track.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.


The above information is prepared for the purpose of investor education only and intended to consider as investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Investors should consult their financial advisers before taking any investment decision.