I will be retiring soon. Should I consider a monthly income plan of a mutual fund?
Monthly Income Plans (MIPs) aim to provide a regular income by investing around 80-90 per cent in debt. The balance is invested in equity to deliver capital appreciation. Though they attempt to give dividends every month, they do not guarantee it nor can they assure you of capital safety. For instance, in 2008, three MIPs (DSPBR Savings Manager Moderate, DSPBR Savings Manager Aggressive and DWS MIP B) did not pay any dividend that year.
A risk averse investor who cannot bear any capital erosion or needs assured returns should avoid such investments. If you are capable of undertaking some amount of risk, then can opt for an MIP such as Birla Sun Life Monthly Income or HSBC MIP Regular. Alternatively, a small amount of your entire portfolio can be invested in such funds.
On the other hand, if you are 60 or above, you could invest in Senior Citizens Savings Scheme (SCSS) and earn assured returns. With a maturity period of 5 years (extendable by another 3 years), you would be able to earn a fixed return of 9 per cent per annum compounded quarterly.