If I need a regular income is a dividend paying mutual fund good investment option?
I would prefer systematic withdrawal plans or SWP over dividend payouts. When you need a regular periodic income a SWP can be far more effective than relying on dividend payouts from your balanced fund. Firstly with a SWP you get a fixed sum of money at desired intervals unlike dividends which depends solely of the distributable surplus accumulated by the fund. Secondly SWP is fully customized unlike dividend payouts as the mutual fund company can change the payout tenure and quantum of payment made as dividend.
Even if you choose the dividend option under Mutual Funds, there is no guarantee that you will get regular income. When you choose the dividend option for your Mutual Fund, you will receive dividends that are declared from time to time by the Mutual Fund. You will also have capital appreciation, if any, when you decide to sell the Mutual Fund.
In case you choose the growth option, you will not receive any dividends but will get capital appreciation. You have to understand that the profits that the fund receives is distributed as dividends under the dividend option while it is retained within the fund in case of the growth option.
If you want regular income, you can choose to invest in corporate deposits or Fixed Deposits.
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