Posted on Wednesday, Nov 27, 2019
SEBI Regulations recently categorized Balanced Funds as Hybrid Funds. In Hybrid Funds there are various category of Schemes which can be launched with different allocation to Equity and Debt Asset Class.
The Balance Advantage Fund which you are referring falls into Aggressive Hybrid Fund Category. As per SEBI Regulations on Scheme Categorization, Aggressive Hybrid Fund can have investment in Equity to the extent of 65% to 80% of Scheme total Asset size and in Debt Asset Class to the extent of 20% to 35% of Scheme total Asset size. The Balance Advantage Fund with higher exposure to Equity Asset Class are volatile in nature. Hence declaration of dividend in these Funds depends on the positive realized returns generated during any given period. There are possibilities that these types of Funds may not declare dividend or declare very small percentage of dividend for long period. Hence, Balance Advantage Fund with Aggressive category should not be considered as investment option if the investor is expecting dividend amount at regular intervals, since the Fund is not a Balanced Fund in the true category and is a Equity Fund in the way the same is managed. If the investor still wants to invest in Balance Advantage Fund, investor can invest in Growth Option and opt for Systematic Withdrawal Plan (SWP) for regular payouts assuming that the Fund will provide appreciation over a long period of time.
As required, mentioned herein below is the comparison between Systematic Withdrawal Plan and Monthly Dividend Distribution Option -
SWP and Monthly Dividend Disbursements:-
In Monthly Dividend Option, Dividends are distributed to Investors on Monthly basis whereas in Growth Option no dividend is declared. i.e. returns generated remain in the option reinvested. Dividend declared every month is not fixed i.e. it depends on Fund’s net realized gain during the month. The Fund may declare dividend only if there is net realized gain and that too the dividend declared amount fluctuates every month depending on net realized gain of the fund. Here investor can’t decide how much cash inflow he can get every month from the Fund House.
An alternative to regular dividend payout is to opt for Systematic Withdrawal Plan (SWP). In this, a fixed amount can be withdrawn at fixed intervals. Moreover, the frequency and amount of withdrawal can also be decided by the investors.
SWP is a method of redeeming money from the mutual fund investment in an organized manner, as opposed to getting it all at once. For example, if an investor has invested Rs 50,000 in a scheme, he can set up an SWP to withdraw Rs 5, 000 every month on a specific date for say 10 months.
Investors use SWP for two purposes :-
1. Withdraw money (if monthly) as a regular monthly cash inflow : This is often done for generating cash flows as per investor’s needs.
2. Avoid the trap of market timing at the time of redeeming the equity mutual fund units: Just as systematic investment plans (SIP) avoid market risk at the time of investment, SWPs lower market risk at the time of redemption.
Systematic Withdrawal Plan is a better option for retired investors as the incidence of tax is lower (as per total income earned) as compared to a fixed rate of Dividend tax on the dividend payout. Under SWP, the investor can take out an amount matching his specific requirements, while dividend option does not allow him to do that and leaves him at the hands of the Fund House to receive the dividend amount.Advise you to further confirm/clarify the same with your Tax consultant as well.
Please visit - www.QuantumMF.com to read Scheme Specific Risk Factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the scheme's objective will be achieved and the NAV of the scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the Sponsor / AMC/ Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.