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What is the various options in mutual funds for regular returns

I am a retired person aged 69 years. I had invested Rs. 15 Lakhs in Senior citizen post office scheme. It had matured an year ago. I had transferred the maturity amount in the post office savings bank hoping that I could invest better yielding instruments. As you know the bank deposit and post office deposit rates also have been reduced thanks to the policies of the Government leaving the old people like me in the lurch. I would like to get consistent return of at least 10 to 12% per annum. Can you kindly suggest the investment avenues including mutual funds meeting my requirement. My risk profile is moderate?

Dec 26, 2016 by V.Sanjeevi, Bangalore  |   Mutual Fund

You are right, the interest rates in fixed income instruments have gone down considerably in the recent past and set to fall further post demonetization.

Your decision to look for avenues beyond fixed income is right and given your risk profile 'Moderate', we can suggest you some solutions within mutual fund space –

1. Dividend option from balanced funds – This is a good option for retired investors and there are few schemes in balanced fund category which offers you monthly and quarterly dividend options. You can check the dividend paying track record of some of these schemes from here –

Birla Sun Life Balanced Fund – Quarterly dividend – https://www.advisorkhoj.com/mutual–funds...

ICICI Prudential Balanced Fund – Monthly dividend – https://www.advisorkhoj.com/mutual–funds...

SBI Balanced Fund – Quarterly dividend – https://www.advisorkhoj.com/mutual–funds...

DSPBR Balanced Fund – Monthly dividend – https://www.advisorkhoj.com/mutual–funds...

HDFC Balanced Fund – Quarterly dividend – https://www.advisorkhoj.com/mutual–funds...

You will notice that the dividend yield of these schemes are between 7–10% Which is slightly lower than your expectation. But note that these dividends are tax free too in your hand. Moreover, apart from dividends, you can also expect capital appreciation if you remain invested in these funds for at least 5 years or so.

To know more about the consistent dividend paying funds, you can click this link https://www.advisorkhoj.com/mutual–funds...

2. Dividend option from hybrid debt funds – If you do not want to take much risk, then these funds could be ideal for you. But remember, the dividend yield for these funds are slightly lesser than that of balanced funds.

Please check the dividend track record of funds from these categories from here https://www.advisorkhoj.com/mutual–funds...

3. SWP from balanced funds – This is a popular option. You can choose funds from these categories and opt for a fixed amount at a fixed frequency. For example – You can invest 15 Lakhs and withdraw Rs. 12,500 per month (withdrawal rate @10%) on a fixed date. The SWP withdrawals after one year will be tax free under long term capital gains taxation applicable for equity and balanced funds. However, the capital gain arising out of each withdrawal prior to one year will be treated as short term capital gains.

Please check the SWP returns of top balanced fund assuming the above investment amount and fixed monthly withdrawal – https://www.advisorkhoj.com/mutual–funds...

4. SWP based on your asset allocation – This is a new concept propagated by us. Here the idea is to invest in balanced funds and liquid funds based on your risk taking ability. Let us understand this with an example –

We are assuming, you have 10 Lakhs as lump sum investment and allocated 60% in Birla Sun Life Balanced Fund and 40% in BSL Cash manager Fund (a liquid fund). That means 6 Lakhs in balanced fund and 4 Lakhs in liquid fund (60:40 ratio).

We have put–in another two filters – 1) Start SWP immediately from liquid fund and allow withdrawal from balanced fund only when it is positive. Therefore, the tool always checks if the balance fund is positive enough to pay the SWP for that month. If not, it will continue SWP from liquid fund till such time balanced fund comes to positive zone.

With the above example you will find, that 6 Lakhs invested in balanced fund is now 7.17 Lakhs after SWP withdrawal of 3.60 Lakhs (Rs. 8,000 per month) and liquid fund is now 3.63 Lakhs after SWP withdrawal of 2.00 Lakhs (Rs. 8,000 per month). Date of investment is 10/01/11 and SWP start date is 28/02/11 and still continuing.

Please check the complete results here https://www.advisorkhoj.com/mutual–funds...

Hope the above examples gives you a good idea as to how you can benefit by investing in mutual funds in order to get regular returns. However, you should also note that dividends are neither assured nor guaranteed that it will be paid regularly at monthly or quarterly intervals. However, it has also been observed that if you are a long term investor and ready to accept market volatility as part of your investing journey, then mutual funds could be the best investment option.

Do write to us if you want to understand the above further.

Thanks for writing to Advisorkhoj : )

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