Analysis of Dividend Payout vs Systematic Withdrawal Option

In this internal analysis, we explore the implications of choosing between a Dividend Payout and a Systematic Withdrawal Option under the new tax rules introduced in the 2018 Budget. To illustrate our findings, we use a real-life example that considers a fund's Net Asset Value, Dividend payments, and Growth.

In the Dividend Payout scenario, we assume that dividends are paid out after deducting the Dividend Distribution Tax (DDT) in compliance with the new tax regime. For the Systematic Withdrawal Option (SWP) illustration, we consider fixed withdrawals, accounting for capital gains in accordance with the new tax regime for the fiscal year 2018-19.

Under the new tax regime, the Long-Term Capital Gains (LTCG) rate hovers around 11.96% or 11.44%, while the DDT rate is approximately 11.648%. As a result, the post-tax returns in both scenarios are quite similar, assuming that similar cash flows are applied in both situations.

This analysis has been conducted by Geeta C and the Dilzer Research Team."