Should I start the SWP after one year of investment in a hybrid fund to earn tax free income

Dwaipayan, I have been reading, with interest, your recent articles on using SWP as an efficient means of income for retired persons. I have one specific question in this regard - I want to invest a portion of my retirement corpus in a good Hybrid Fund and begin a SWP to fund my monthly expenses. Since the SWP from an Equity oriented Hybrid Fund is tax free after a holding period of 1 year, would it be beneficial for me to deduct my first year's income requirement from the corpus and invest the balance in the Hybrid fund and then start the SWP after the completion of 1 year? Please give your suggestion?

Apr 6, 2016 by Harish Sadasivan, Bangalore  |   Mutual Fund

Yes, you are right. The amount equivalent to first year withdrawal can be parked into a liquid fund and rest can be invested in a hybrid equity fund. For the first year, you should withdraw monthly from the liquid fund and from second year onwards from the hybrid equity fund. We are suggesting liquid fund in lieu of keeping the fund in your savings bank account as can earn 7-8% return from liquid funds whereas savings bank returns are around 4% only.

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