I want to get monthly income from my investments. Can someone please suggest what are the options I have?Asked
In order to get monthly income an investor has two options:
1) Monthly Income Plans (MIPs).
A monthly income plan is a debt oriented hybrid mutual fund scheme that invests around 70-80% of its total corpus in debt instruments such as debentures, government securities, etc. While the remaining part is invested in equity instruments.
The aim of such a fund is to provide the investor with periodic payments on a monthly basis. MIPs usually have monthly, quaterly, half-yearly and annual options. MIPs provide regular, stable returns with low risk.
There are two types of MIPs:
2) Systematic Withdrawal Plans
Systematic Withdrawal Plans (SWPs) are the opposite of Systematic Investment Plans (SIPs). In SWP the investor regularly withdraws a fixed amount of money from a fund. The investor can have a monthly, quarterly or annual frequency for withdrawal of a fixed amount decided by him.
There are many investment options available that will generate regular income. Some of them are as under:
1. Mutual Funds:
Mutual funds are the most popular method to invest in India.
Mutual funds can be debt oriented or equity oriented. Debt oriented funds are most preferred by investors who sek regular returns. They are preferred over Fixed Deposits as they provide superior returns at marginally higher risk. Consider Groww's Better Than FD Returns Low Risk. The fund has consistently outperformed its benchmark, generating an annualized return of 9.18% p.a as compared to 8.25% p.a of its benchmark over a 5 year period. You can click here to evaluate few SIP options available to you.
2. Low risk Mutual Funds using Systematic Withdrawal Plan (SWP):
SWP allows the investor to withdraw a specified amount from the fund at regular intervals of time. Such a plan is most suited to retirees looking for a fixed flow of income. SWPs provide the investor some protection from market volatility by allowing them to withdraw a specified amount at pre-defined intervals of time in order to meet their investment objectives. However, this cannot be a sustainable source of income as continued withdrawal will exhaust the corpus at some point of time in the future. You can read more about SWPs here.
3. Fixed Deposits:
Fixed Deposits have traditionally been preferred investment tools, but this is rapdily changing. Fixed deposits usually earn interest of 6.00% p.a, as compared to 7.00-9.00% p.a in debt funds. Fixed Deposits and Government Bonds are the considered riskfree assets. However, in exchange for marginally higher risk, you can generate signficantly larger returns by investing in Debt oriented Mutual Funds or Balanced Funds.
Hope this answers your question!
For getting monthly income invest in Monthly Income Plans(MIPs).
MIP is a debt oriented hybrid mutual fund scheme that invests around 70-80% of its total corpus in debt instruments such as debentures, government securities, etc. While the remaining part is invested in equity instruments.
Key points for MIP fund is:
· MIPs are managed in a way that the debt instruments aim to generate a steady revenue while the equity instruments give the boost to return on investment.
· Good option for risk-averse investment, MIPs are good stepping stone to investing in stock market, with its selective and small equity exposure.
· Being market-related, it is not risk-free, hence does not offer any assured returns. However, many well-managed MIPs aim to generate regular payments.
· Like other debt funds, withdrawals from MIP are subject to capital gains tax.
The fund is one of the best option to provide the investor with periodic payments on a monthly basis, with low risk along with decent return on investment.
Some of the popular MIPs available in market are:
· SBI Magnum Monthly Income Plan
· Aditya Birla Sun Life MIP II - Wealth 25
Technically, there are two ways to get monthly income:
1. Invent in low risk mutual funds and do SWP (Systematic withdrawal plan)
This means you withdraw a fix amount every month - like a salary. Your total amount will keep reducing every month. If you can somehow make sure that the amount you earn from profits is same as you withdraw or greater than withdraw, you can generate perpetual income for you.
2. Invest in monthly Income plans
Alternatively you can invest in monthly income plans that some mutual funds offer. Check the link - Monthly Income Plans. These plans pay you monthly income. Have attached an example plan.
Most of the mutual fund schemes also support dividend plans - where you get regular dividend from your investments. However, please note, systematic withdrawal plans (SWP) is better than dividend plans because of the following reasons:
1. No assured regular income with dividend plans
Why with SWP you can set your inflow yourself, it is not guarenteed that you will get dividends regularly
2. SWP is more tax efficient that dividend plans
Investors opting for SWP are subjected to paying short term capital gains or long term capital gains depending on the time frame they opt. One of the better strategies is to start SWP after one year from the investment date. In dividend plans, mutual funds need to pay dividend distribution tax which is more than 25%