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How to Generate Regular Income

I am a retired family man with 90 per cent of my savings invested in tax-free relief bonds. Now, with these bonds maturing one by one, I would like to invest the amount and get regular dividends from mutual funds —B. J. Bharucha

I am a retired family man with 90 per cent of my savings invested in tax-free relief bonds for regular income. Now, with these bonds maturing one by one, please advise me on safe mutual funds. I have already invested Rs 5 lakh in Franklin India Bluechip Fund, but I would like to invest and get regular dividends from mutual funds now.
-B. J. Bharucha


Please remember that all mutual funds suffer from market risk, though the level of risk varies from category to category.

Among the mutual funds, monthly income plans will be the most suitable for you. These funds invest around 80-90 per cent of their assets in debt instruments and the remaining in equities. With a debt-heavy portfolio, these funds are relatively less volatile. But remember that the name of this category of funds is often misleading. In spite of their name, these funds are not obliged to declare dividend every month.

If the fund performance suffers, they can easily skip dividend declaration for any number of months in a row. Therefore, depending solely upon dividend income is not advisable. There are a few good MIPs that have a decent performance record such as FT India MIP, DSPML Savings Plus Moderate and Birla MIP.

Alternatively, you can also consider investing in post office monthly income scheme (MIS). MIS is the most reliable savings instrument which combines safety of capital with regular monthly income. The scheme offers assured returns of 8 per cent per annum, and a 10 per cent bonus at the time of maturity (which is after six years). However, one can only invest a maximum of Rs 3 lakh in a single name, and Rs 6 lakh as joint name. Premature withdrawal is possible after one year subject to some discount.

We think that the post office MIS will be the most suitable investment vehicle for you. Beyond the investment limit of the MIS, you can look at the monthly income plans of the mutual funds.

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