I am a senior citizen, and I need a regular monthly income from my investment. Someone told me that HDFC Balanced Advantage fund gives a decent return every month, and simultaneously, the capital also appreciates. What is your opinion on this?
This is broadly true but do not opt for the dividend plan while investing. One should give more importance to the return generated by a mutual fund scheme than the dividends declared. It is not possible for any mutual fund to continuously generate good returns on short intervals. All funds do undergo a rough patch, and even HDFC Balanced Advantage had one. But now it has reversed, and the fund is doing well.
It is better to opt for the growth plan and set up a withdrawal strategy with an equal amount of monthly withdrawals for deriving regular income. But ensure that your annual withdrawals do not exceed 6 per cent of the corpus.
For example, if you invest Rs 1 lakh and the fund gives a return of 10 per cent, you will get Rs 500 every month through the withdrawal plan. After that, the corpus would appreciate to Rs 1.04 lakh by the next year. The withdrawal amount can then again be revised.
You won't get upset by following such a withdrawal plan if the fund undergoes a rough patch for short intervals. This, as you would continue to receive a fixed amount of money and 40 per cent of the returns (4 per cent) would still be available for the corpus to appreciate over the long term.