I am approaching retirement and looking for a fixed monthly income stream. How is monthly income planned to create this income flow?
Surya Pratap Singh, Jaipur
A fundamental misconception when it comes to monthly income plans from mutual funds is that they provide a fixed monthly income every month. These do not generate regular income by virtue of growth alone, which is why they resort to paying dividends every month to make it seem there is a monthly income flow. The dividend is not paid from the gain, but from the corpus that you have invested, which means the worth of your investment corpus too goes down each passing month.
You should be aware that dividends from mutual funds do not guarantee how much money they will pay out each passing month. If you were depending on this as an income stream in your retirement, you should not count on it for the fixed monthly income stream. To create a fixed monthly income flow, you could consider setting up a systematic withdrawal plan (SWP) facility on your mutual fund investments, which will guarantee a fixed payout each month and act like a regular income. Here again, the corpus could get depleted, depending on the monies you wish to withdraw each month.
