There is comfort in repetition because we know what is coming. Think about something that you do every day and you know it will happen, like eating food. You know either you or someone else will fix you your daily intake of nutrients and that makes you feel safe. But sometimes uncertainty arises like running out of groceries, then what do you do? You look for a restaurant or order online. You find a solution but that is just temporary.
Likewise, you get your salary through your job or business but what about when you retire? Do you starve or do you look for a solution?
Investments aren't your restaurant or food delivery solution, it's a cook! You invest and it gives you exactly what you ask for. Monthly income plan in mutual funds can be a permanent solution to your uninterrupted monthly returns.
So how does one figure out which is the right monthly income investment plan?
Mutual funds provide a diversity of smart and convenient choices to meet the specific needs of investors. Many investors look for a regular income from their mutual fund investment, just like receiving a payroll. If you are looking for a monthly investment plan with high returns in mutual funds there are two roads- dividend payout and systematic withdrawal plan (SWP)
Dividend payout is a plan where the gains are given out to you in the form of dividends at intervals by the mutual fund company. The NAV (net asset value) of the plan falls to the size of the payout. For example, if a fund has NAV of Rs. 500 and says ₹ 5 dividends, the fund will have to sell portfolio holdings of worth ₹ 5 in the market and give this out as the dividend. The NAV will decrease and it will be ₹ 495. Therefore, dividends are more like periodic profit booking and not an additional gain. Equity dividend fund is not taxable whereas debt dividend fund is. Although equity dividend fund does provide higher return but at higher risk. One thing to remember is, the monthly return on investment in dividend payout is not fixed.
Another option is SWP which is a fixed amount that can be withdrawn at fixed intervals.
System Withdrawal Plan
This is best for people looking for a fixed monthly income plan.
SWP is a way of reclaiming wealth from the mutual fund investment in an orderly way, instead of getting it all at once. Imagine you have invested ₹ 10,000 in a scheme, then you can set up an SWP to withdraw ₹ 1000 each month on a particular date for the next 10 months.If the fund performs well then your SWP will last longer. But if the performance is poor, it’ll cease to exist sooner. Remember if your annual withdrawal is less than what the fund is generating every year, you can continue earning from this mutual fund.
These are your options for investments that pay monthly. Now it's your call where you would want to invest and what you are expecting. These plans work out best for investors in a requirement of a regular flow of income. Although, dividend option doesn’t guarantee a regular generation of income. So, it is fit to choose SWP over dividend as it is much safer.
Your idle wealth sitting in the bank is going to run out soon. What then? There are people who have put their money in fixed deposits and paying a tax of 10-30% on the interest earned. And then there are people who are chasing for returns and with calculated investments are paying a tax of just 10%. In the end, it all boils down to one question- how do you want your retirement planner to look like? You need to look for a solution for your safety and security. Hence start investing!