I will be retiring next month and want to use my investments in such a way that I receive a fixed monthly income from my investments. Are monthly income plans from mutual funds a good option?
By regulation, dividends from mutual funds are not guaranteed in terms of how much they will pay out every month
I will be retiring next month and want to use my investments in such a way that I receive a fixed monthly income from my investments. Are monthly income plans from mutual funds a good option?
Sumit Singh, Gurgaon
Retirement comes with its share of uncertainties and anxieties. Having a fixed income is a concern which most people who do not have a defined pension plan worry about. The name monthly income plan offered by mutual funds technically does not mean these products pay you a fixed monthly income. MIPs from mutual funds do not guarantee a fixed sum every month, if that is what you are assuming it to be.
Although these schemes payout dividends – they are neither guaranteed. You cannot depend on this investment as a fixed sum that you would receive every month. By regulation, dividends from mutual funds are not guaranteed in terms of how much they will pay out every month.
Instead of putting your investments into these MIPs, you would be better off by initiating a systematic withdrawal plan (SWP) with your investments. This way, you can fix the sum you need every month in retirement. This approach is not bereft of risks – when the markets gain, your investment value will go up, but as you are regularly withdrawing a fixed sum from this investment, there will be times when you will be digging into your corpus, something that you should be aware of.