I am a senior citizen and want to invest a lumpsum in mutual funds for good dividends and monthly income. Kindly suggest.
- Vijay
You should first of all stop believing that the return from mutual funds is only in the form of dividends. Tax efficiency is very important for senior citizens. There has been a major change in this budget. Now dividends and capital gains from equity funds are taxable at 10 per cent. So, if a dividend of Rs 10 is declared, you will get Rs 9. It would be better to opt for a systematic withdrawal plan (SWP). And I would not suggest that you invest your money in lumpsum. There is a risk of investing at a higher market level. You should spread it over at least one and half to two years time. Which fund should be chosen depends on the monthly income requirement out of this corpus. If you are receiving pension and you need a very little amount from this corpus, that too infrequently, then it is a different thing. But as in most of the cases, if you are completely dependant on the income from the corpus, then your withdrawal rate should not be more than 5 per cent of the corpus. This is important because if you limit your withdrawal to 5 per cent, then it is very likely that you would be able to generate sufficient income for your inflation adjusted expenses throughout your life. For example, if you have Rs 1 crore and you withdraw Rs 5 lakh annually, which would be around Rs 40,000 per month, then there is a possibility that next year you would be able to withdraw Rs 42,000 per month to facilitate the increasing inflation.
This article was originally published on May 21, 2018.
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