Generate monthly returns with withdrawal plans

Bearing the never-ending trail of expenses for essentials as well as non essentials, is routine. While the amount of expenses may vary, the range of monthly or periodic outflows is usually estimated. Investment plans that are likely to generate regular cash flow would be helpful.

Mutual funds could offer a good solution for such requirements of investors through the concept of systematic withdrawal plan (SWP) or dividends. Investors with long term investment horizon may evaluate MFs in the category of monthly income plans (MIP) and balance funds for the purpose of generating periodic income based on one’s risk appetite and investment horizon. The asset allocation construct is across debt & equity, the debt investments brings income & stability while the equity portion generates returns through capital appreciation. The requirement to rebalance the portfolio from time to time is likely to result in income accrual / regular profit booking & generation of positive distributable surpluses.  

Hybrid schemes may be able to tide over market volatility relatively better as regards periodic dividends for their investors. Investors must however be aware that performance of mutual funds and generation of surpluses is subject to market fluctuations and that dividends or their quantum are never guaranteed under MF schemes.

Balance funds invest a substantial portion (65-75%) of the portfolio in equities while the remaining portion (25-35%) is invested in debt. The equity portion of the fund helps generate returns while the debt portion provides cushion against volatility. Balance funds are suitable for investors who have moderately high risk appetite and an investment horizon of around 5 years or more. To receive periodic income, an investor can either invest in dividend option of these funds or opt for SWP.

The writer is head-sales and marketing, Canara Robeco