Regular Investment Strategy: Gaining Monthly Profits through Mutual Funds
In the realm of investment strategies, two popular options for generating regular income are Monthly Income Plans (MIPs) and Systematic Withdrawal Plans (SWPs). Each plan has its unique features, benefits, and drawbacks.
Monthly Income Plans (MIPs) primarily invest in debt securities and fixed-income investments to generate regular income. They are designed to provide a stable income stream, often with a focus on safety and predictability of returns. MIPs typically involve allocating a portion of the investment to equities and the rest to debt instruments to achieve a balance between risk and return. The primary goal is to generate regular income through interest and dividend payments.
On the other hand, SWPs are not investment plans but rather a withdrawal strategy from existing mutual fund investments. They allow investors to withdraw a fixed amount at regular intervals (e.g., monthly, quarterly) from their mutual fund holdings. SWPs can be applied to any mutual fund investment, including equity, debt, or balanced funds.
In an SWP plan, you have the flexibility to choose the amount, frequency, and date of withdrawal. The value of the investments in the fund after the first month is Rs. 12.4 lakh, and after the second month, it drops to Rs. 9.32 lakh. This reduction is due to the systematic withdrawal of funds. For instance, in the first month, 25 units were redeemed to pay Rs. 10,000, and in the second month, 19 units were redeemed to pay the same amount.
Compared to MIPs, SWPs offer more flexibility in terms of choosing the underlying investment and withdrawal schedule. However, MIPs are designed to generate income through new investments, while SWPs are used to create an income stream from existing investments.
Retirees and those needing additional income to tide over rising living costs can benefit from SWPs, as they provide a regular income stream by liquidating a portion of the mutual fund investment. SWPs also offer more tax efficiency compared to the Dividend Option, as they distribute the income as capital gains, which are taxed at a lower rate.
It is essential to note that while SWPs offer flexibility, it is crucial to consider the total corpus you have in the scheme and how long it can last. There is no upper limit on the amount you can withdraw through SWP, but it is advisable to maintain a balance between your income needs and the growth of your investments.
In conclusion, when choosing between MIPs and SWPs, investors should consider their investment goals, risk tolerance, and the type of income they seek. Conservative Hybrid Funds, Short Duration Debt Funds, Corporate Bond Funds, Banking and PSU Debt Funds, and Equity Savings Funds can be good choices for earning monthly income with low volatility. The overnight fund and Liquid Funds are among the safest categories of fixed-income funds.
The initial investment in the SWP plan is Rs. 10 lakh, and the purchase NAV (Net Asset Value) is Rs. 20. You can choose a day of the month or quarter for a withdrawal and the amount credited to your bank account by the Asset Management Company (AMC). Furthermore, you can stop the SWP at any point in time, add further investments, or withdraw an additional amount over and above the fixed SWP withdrawals.
- Investors can opt for mutual funds to generate regular income, with Monthly Income Plans (MIPs) focusing on debt securities and fixed-income investments, while Systematic Withdrawal Plans (SWPs) allow withdrawals from existing investments.
- Society of retirees and individuals with additional income needs can benefit from SWPs as they offer a regular income stream by liquidating a portion of mutual fund investments and provide more tax efficiency than the Dividend Option.
- Hybrid Funds, Short Duration Debt Funds, Corporate Bond Funds, Banking and PSU Debt Funds, and Equity Savings Funds can be wise choices for monthly income with low volatility, while Overnight Fund and Liquid Funds are among the safest categories of fixed-income funds.
- When engaging with mutual fund investement strategies such as MIPs and SWPs, it is vital to consider one's investment goals, risk tolerance, and the desired type of income, while maintaining a balance between income needs and the growth of investments.
