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I inherited 10 lakhs: How can I invest for my mother-in-law's monthly needs without touching the principal?

Ramalingam Kalirajan |6460 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Sep 30, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Sep 30, 2024Hindi

Hello sir My FIL passed away last year he has invested good amount 10L for my MIL 5 lacks shares and 5 lacks MF My question is where how we need to invest money to get good monthly return for MIL monthly needs without using capital amount

Ans: I understand your concern about ensuring a regular monthly income for your mother-in-law (MIL) without depleting the capital amount. Managing the Rs 10 lakh in shares and mutual funds effectively can help provide a steady income while maintaining the investment value.

Let's look at how you can spread the investment to generate a reliable monthly income for her needs.

Review of Current Investments
Shares (Rs 5 lakh): Shares can provide growth through capital appreciation. However, they are subject to market volatility and may not provide regular, reliable income. If the share portfolio consists of dividend-paying stocks, it may offer periodic income.

Mutual Funds (Rs 5 lakh): Mutual funds, especially equity mutual funds, can offer long-term growth. However, for monthly income, some rebalancing might be necessary. Debt mutual funds or a balanced allocation between equity and debt funds can be more suitable for regular income generation.

Generate Monthly Income from Mutual Funds
A Systematic Withdrawal Plan (SWP) can be an excellent option to generate regular income from mutual funds without depleting the principal. SWP allows you to withdraw a fixed amount every month.

You can set up an SWP from the Rs 5 lakh mutual fund corpus. If the fund generates an average annual return of 8-10%, you can withdraw a fixed amount each month while allowing the corpus to grow.

For example, with a monthly withdrawal of Rs 5,000, the Rs 5 lakh corpus can last for a long time without depleting the principal too much, assuming steady returns. The exact amount will depend on the chosen fund's performance and market conditions.

Rebalancing Share Investments for Regular Income
Shares are not ideal for generating monthly income due to their market-linked nature. To provide consistent monthly income, it is advisable to:

Sell a part of the shares and reinvest them in more stable, income-generating assets such as debt funds or fixed-income mutual funds. This will ensure that the volatility of shares does not affect your MIL's monthly cash flow.

You could consider selling a portion of the shares to move Rs 2-3 lakh into safer instruments like debt mutual funds. These funds provide more predictable returns and can support a SWP for regular monthly income.

Allocation for Safety and Growth
To strike a balance between income generation and preserving capital, here’s a suggested investment strategy for the Rs 10 lakh corpus:

Debt Mutual Funds (Rs 6 lakh total): Move Rs 3 lakh from shares and Rs 3 lakh from existing mutual funds into debt mutual funds. This will create a stable foundation for monthly income via SWP.

Equity Mutual Funds (Rs 4 lakh): Retain some exposure to equity mutual funds to benefit from long-term capital appreciation. This part can grow over time and be used for future needs or emergencies.

Fixed Income Options: If you want more certainty, a portion of the corpus can be allocated to Senior Citizen Savings Schemes (SCSS) or Post Office Monthly Income Schemes (POMIS), which are safe and provide fixed interest.

Plan for Monthly Withdrawals
Let’s assume your MIL needs Rs 15,000 per month for her regular expenses. Based on the suggested asset allocation, here’s how you can plan:

SWP from Debt Mutual Funds: With Rs 6 lakh in debt mutual funds, you can set up an SWP to withdraw Rs 10,000-12,000 per month. This will provide a stable income stream while keeping the principal relatively safe.

Dividend Income from Equity Mutual Funds: Although dividend yields are not guaranteed, the remaining Rs 4 lakh in equity mutual funds can provide capital appreciation and occasional dividend payouts. However, these should be seen as bonus income rather than relied upon for monthly expenses.

Fixed Income for Additional Security: Any surplus can be parked in fixed-income options like SCSS, offering more stability and certainty.

Long-Term Approach
Since you aim to generate income without depleting the capital, it is crucial to monitor the portfolio regularly. Keep an eye on market performance and rebalance as needed. For example:

If equity markets perform well, you may consider moving more funds from equity to debt to lock in gains and increase the SWP.

Alternatively, if the debt market offers better returns, a higher allocation can be made to debt instruments for increased income stability.

Avoiding High-Risk Investments
Since the primary goal is to provide for your MIL’s needs without taking undue risks, it’s important to avoid high-risk or speculative investments. Real estate, gold, or direct stock market exposure can be volatile and are not suitable for generating steady monthly income.

Key Benefits of This Approach
Consistent Monthly Income: SWP from debt mutual funds will provide a reliable, predictable income stream.

Preservation of Capital: By maintaining a balance between equity and debt, you ensure that the principal remains largely intact while still providing growth potential.

Inflation Protection: Equity mutual funds offer long-term capital appreciation, which helps protect against inflation eroding the purchasing power of her income.

Final Insights
By rebalancing the investments and using a Systematic Withdrawal Plan (SWP) with a mix of debt and equity mutual funds, you can achieve your goal of providing your MIL with a reliable monthly income. Ensure regular portfolio reviews and adjust the asset allocation as necessary to meet her needs without compromising on capital safety.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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