Should we invest in the dividend plans of mutual funds for regular income?
Firstly, I would like to demystify that dividends from mutual funds are not a great yardstick. Mutual funds getting dividends don't necessarily mean that they are great performers too. Rather, the performance of a mutual fund is something that is most crucial.
If you invest in a mutual fund and it gives you a dividend of 10 per cent on the face value, you may feel happy about it. But it is effectively your money coming back to you. The principal may go down in value. The quantum of the dividend, as well as the time of paying it, is decided by the fund. Don't do that simply because dividend plans are not very efficient and not very much inclined to your requirements.
The right way of deriving income or periodic withdrawal is the systematic withdrawal plan. This is because it is tax-efficient and it is customised to your requirements, as you will decide how much amount you need and at what frequency or intervals. For example, you may need Rs 15,000 every quarter. Further, it is also methodical and can be implemented very easily.