Thinking of investing for monthly income? Keep certain things in mind.
We believe one must keep certain considerations in mind when planning to derive regular income from an accumulated corpus.
Keep annual withdrawals around 4-6 per cent
Anyone who is planning to derive a regular income from investments must note that one's annual withdrawals should not exceed 4-6 per cent of the total corpus.
Implementing the same rule, and keeping 4 per cent as the withdrawal rate (to be on the conservative side), one would need a corpus of Rs 3 crore for deriving a monthly income of Rs 1 lakh, starting today.
Don't consume all the returns
It must be noted that the worth of Rs 1 lakh today, may not be the same after a few years. That is because of inflation. Therefore, in the future, one would need much more than Rs 1 lakh to meet their actual expenses. That is why one mustn't consume all the returns generated from the invested corpus during the year. A part of them must be retained so that the corpus continues to grow and provides inflation-adjusted income during the later years.
For instance, if you have earned an annual return of 8 per cent (Rs 24 lakh on a corpus of Rs 3 crore), you should consume only 4 per cent (Rs 12 lakh of Rs 24 lakh earned) for your expenses. Letting the remaining Rs 12 lakh invested will help in growing your corpus. That is because, after a few years, you may need more than Rs 1 lakh a month for your expenses and for that, you would need a higher corpus than what you have today.
Invest in equities to grow your corpus
It is generally advised that one must allocate at least one-third of their portfolio to equities since it is the only asset class which not only has the potential to deliver higher inflation-adjusted returns but also helps grow your corpus over the long term.
Do you want to know which mutual funds to invest in to get inflation-beating returns? Don't sweat. Value Research Portfolio Planner gives you a list of suggested funds that can provide steady returns, better than the traditional options.
Suggested read: The ultimate portfolio for a retiree