Creating Tax-Efficient Regular Income Through SWP in Equity Hybrid Funds by Rajesh Bansal, Managing Director, Midas FinServe Pvt. Ltd
In a world where financial goals and life stages evolve continuously, investors increasingly seek options that offer Stability, Flexibility and Tax Efficiency—without compromising Growth. One such smart investment strategy that checks all the right boxes is the Systematic Withdrawal Plan (SWP) through Equity Hybrid Funds.
What Are Equity Hybrid Funds?
Equity Hybrid Funds, earlier known as Balanced Funds, typically invest around 65% in equities and the remaining 35% in debt instruments. This blend offers the perfect mix of Capital Appreciation from Equities and Stability from Debt—making it ideal for conservative and growth-focused investors alike.
More importantly, these funds Dynamically manage market movements—increasing Equity exposure during market dips (buying low) and trimming it during market highs (selling high). This disciplined mechanism automatically imbibes the golden rule of Equity Investing: Buy low, Sell high.
The SWP Advantage: Regular Income, Smart Taxation
An SWP or Systematic Withdrawal Plan allows you to withdraw a fixed amount regularly from your Mutual Fund investments — Monthly, Quarterly or Half Yearly.
Unlike Interest income from traditional products like Fixed Deposits (FDs) (which is fully taxed at your slab rate—potentially 31.2%), withdrawals from Equity Hybrid Funds via SWP are far more tax-efficient. Here’s why:
* When you withdraw, a portion of the amount is treated as capital return (not taxed), and the rest as capital gain.
* Long Term Capital Gains (from Equity Fund) up to Rs.1.25 lakh per year are tax-free.
* Long Term Capital Gains (from Equity Fund) beyond Rs. 1.25 lakhs are taxed at only 12.5% under the latest LTCG rules.
Let’s Compare:
Assume an investor withdraws Rs.9 lakhs annually from a Rs.1 crore investment:
• FDs: Entire Rs.9L is taxed at marginal rate = ~Rs.2.80L Tax
• SWP via Equity Hybrid Fund: Tax on only a portion of Rs. 9 L, with most falling under exempt or low LTCG bracket = Significantly lower tax outgo
Who Should Consider SWP?
SWP plans are ideal for a wide range of investors:
• Retirees seeking monthly/quarterly income with better tax outcomes
• Young professionals looking to create a second income stream
• Parents who need regular funds for a child’s higher education
• Families wanting to generate steady income for homemakers or senior members or special child
Flexibility: On Your Terms
One of SWP's biggest benefits is flexibility unmatched by traditional instruments like insurance plans or FDs:
• Switch On/Off Anytime: Start when income is needed, pause when it’s not.
• No lock-ins or penalties on withdrawals.
• Customize the frequency and amount of income as per your life goals.
Real-World Performance:
An investor who placed Rs.1 crore in an Equity Hybrid Fund (like HDFC Hybrid Equity Fund) in Jan 2017 and started withdrawing Rs.2.25 lakhs quarterly from Jan 2018 would have received Rs.65.25 lakhs as income and still have a fund value of Rs.1.61 crores as of April 2025—an impressive 12.9% CAGR while generating consistent payouts. This real example beautifully showcases the dual power of Growth + Regular Income.
Conclusion:
Whether you are planning for Retirement, Supplementing your income or Aligning investments with a life goal, SWP in Equity Hybrid Funds is a powerful tool. It combines the market-linked growth of equities, stability of debt, efficient taxation and unmatched flexibility All in one package.
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