In our earlier posts on SWPs (Systematic withdrawal plan), we discussed how SWPs from Balanced Mutual Fund schemes could be a very good option for investors looking for regular returns from their investments post retirement etc. The fund we will analyze today is DSP BlackRock Balanced Fund which is one of the top performing balanced funds with a long term track record.
As we have discussed earlier Balanced Mutual Funds invests 65 – 75 % of the portfolio in equities and rest in debt or money market instruments. Balanced funds are subject to equity taxation as these are hybrid equity oriented mutual funds. Long term capital gains, on investments of more than 365 days and the dividends received from balanced funds are tax free. Short term capital gains applicable for investments of less than or upto 365 days are taxed at 15%.
We at Advisorkhoj receive lot of queries from investors about balanced funds. So, if you also have some queries or want to know more about balanced funds then we suggest that you read the following articles –
Can mutual fund balanced fund be your best bet
Investing in balanced funds versus a portfolio of equity and debt funds
Why balanced funds may be the best investments for new mutual fund investors
For any specific query you may also write to us at firstname.lastname@example.org
What is Systematic Withdrawal Plan (SWP) in Mutual Funds
Systematic Withdrawal Plans or SWP, as popularly known, is a service offered by Asset Management companies in India (AMCs), which provides investors withdrawal of a specific amount at a pre determined time frequency or date – like, weekly, fortnightly, monthly, quarterly, half-yearly or annually.
If you can understand the benefits of this mechanism fully, then this could become the most effective and tax efficient way for you to earn regular returns from your Mutual fund investments in your retirement years.
Let us see some examples of top performing Balanced Funds.
How SWP worked in case of DSP BlackRock Balanced Fund
If you had invested
र 10 Lacs in DSP BlackRock Balanced Fund – Regular Plan - Growth, 11 years back (01 August, 2005) and withdrawn र 8,000 per month after one year (02 August, 2006), then the current value of your investment would have been र 29.64 Lakhs even after withdrawing र 9.68 Lakhs over a period of 10 years!
Monthly SWP withdrawal of
र 8,000 was assumed to have started after one year (starting 02 August, 2006) from the date of investment (01 August, 2005) and thereafter on the 2nd of every month so that each and every SWP amount in the hands of the investor is tax free!
The image below shows how we have selected the different options in our SWP Return Calculator to get this result. You can also explore this research tool to explore SWP returns of any fund of your choice.
Source: Advisorkhoj SWP Calculator – DSP BlackRock Balanced Fund Regular Growth (Data as on 08/08/2016)
SWP results of DSP BlackRock Balanced Fund – Regular Plan - Growth
From the above chart you can see that you would have withdrawn a total of
र 9.68 Lakhs through 121 equal monthly SWP instalments of र 8,000 each, thus, you would have got a tax free return of 9.6% every year. Even after withdrawing a tax free amount of र 9.68 Lakhs over 10 years, the current value of your investment would be र 29.64 Lakhs! The return of this fund is annualised (IRR) 16.18%.
You may Download the cash flow in excel and check
How to tackle inflation through SWP?
Yes, you can beat the inflation by increasing your SWP amount by a certain percentage every year! For example (see the chart below) – here, we have increased the SWP amount by 5% annually. Let us now see the results –
Source: Advisorkhoj SWP Calculator with Annual increase (Data as on 08/08/2016)
From the above image, you can see that the investor would have withdrawn a total of
र 11.88 Lakhs through 121 increasing SWP instalments, starting from Rs. 8,000 per month in the first year and ending with र 12,000 per month in the last year. Therefore, he would have got a tax free return of 9.6% in the first year which gradually increased every year and in the last year it was whopping 14.40%. Even after withdrawing a tax free amount of र 11.88 Lakhs, the current value of his investment would be र 26.07 Lakhs! The fund gave an annualised (IRR) 16.23% return. Please check the details here
Please download the cash flow in excel to check how it worked?
Let us now see how the SWP amount increased over a period of time, the increasing annual withdrawal % on the lumpsum amount and how the value of net investments changed annually post these systematic withdrawals.
As you can see from the above image, how we have increased the SWP amount annually by 5% on the initial investment. You will also notice that during this entire period, the net investment value never dropped from the initial lumpsum investment amount i.e.
र 10.00 Lakhs. It proves that if you remain invested over long period in balanced funds then the trailing returns should be positive.
DSP BlackRock Balanced Fund vs Valueresearch Hybrid Equity Oriented index
Now let us see the annual returns of DSP BlackRock Balanced Fund – Regular Plan - Growth against VR hybrid Equity Oriented index
Source: ValueExpress Analytics
You will notice that during the last 11 years, DSP BlackRock Balanced Fund – Regular Plan - Growth has beaten the VR-Hybrid Equity Index in most of the years excepting in 2008, 2011 and 2013 when the markets returns were extremely volatile.
About DSP BlackRock Balanced Fund
DSP BlackRock Balanced Fund is a hybrid equity oriented fund, popularly known as balanced funds. Launched in May 1999, it is a popular fund in the Balanced Fund category from one of India’s top AMCs, DSP BlackRock Mutual Fund. The fund has an AUM of
र 1,226 Crores (As on June 30, 2016). It is one of the best performing Balanced Funds in the industry with a long term track record of 17 years! The fund is jointly managed by Atul Bhole, Pankaj Sharma and Vikram Chopra.
The top 5 stocks that the fund is invested in, are – HDFC Bank, Yes Bank, Ultratech Cement, SBI and BPCL. Financial, Chemical and Automobiles are the 3 top sectors that the fund is bullish on.
Lumpsum returns of DSP BlackRock Balanced Fund – Regular - Growth
So far we discussed the SWP returns of DSP BlackRock Balanced Fund – Regular - Growth and found how amazing the results were. Let us now also examine the lumpsum returns of this fund.
Had you invested
र 10 Lacs in this fund 11 years back on 01 August, 2005 then your investment would have grown by almost 5 times! The current fund value would have been र 49.73 Lakhs, a CAGR return of 15.65%. For the same period, if this amount was invested in fixed deposit then you would have got only र 23.14 Lakhs, a whopping difference of र 26.59 Lakhs!
Please check the returns here – Lumpsum returns of DSP BlackRock Balanced Fund
SIP Returns of DSP BlackRock Balanced Fund – Regular - Growth
Let us know check the SIP returns of this fund. DSP BlackRock Balanced Fund – Regular - Growth SIP returns has also been very good! If you had started a monthly SIP of
र 5,000 on 01 August, 2005, then you would have accumulated a corpus of र 14.89 Lakhs (based on NAV of 09 August, 2016), against your total investment of only र 6.65 Lakhs through 133 instalments. During this period the fund has given XIRR return of 13.93% and beaten the SIP returns of CNX NIFTY.
If you had started a SIP of
र 5,000 in CNX Nifty during the same period then the current value would have been only र 11.65 Lakhs only with a return of only 9.83% only. Check out SIP Return Calculator
Source: Advisorkhoj SIP Calculator
Please also note that while doing an analysis of SIP returns of balanced funds, we found that, in the long run the SIP returns of balanced funds are comparable to the SIP returns of large cap funds – How SIPs in top balanced funds have created as much wealth as large cap funds
DSP BlackRock Balanced Fund – Regular - Growth gave very good SWP returns over the last 10 years or so and may be a good choice for investors looking for regular income from their lumpsum investments in post retirement period by taking moderate risk. However, investors should note that the past performances of mutual funds are no guarantees for future returns. Mutual fund investments are also subject to market risk and therefore investors must consult their financial advisors and check if investment in DSP BlackRock Balanced Fund is suited for their investment needs based on their risk profile.
Readers interested in knowing more about SWP, may read the following contents –
Mutual Funds are ideal investment option for retirement planning
Mutual Fund systematic withdrawal plans are smart option for income needs
Would you like to read some more SWP fund reviews, please check SWP reviews of ICICI Prudential Balanced Fund, Reliance Regular Savings Fund Balanced option, Birla Sun Life Balanced 95 Fund and SBI Magnum Balanced Fund
Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.