Creating a Monthly Income for My Parents: Post Office MIS or Equity SWP?

Ans: You’ve been a thoughtful son, considering your parents’ needs after their years of dedication to your upbringing. Now that you have Rs. 12 lakhs at your disposal, it’s crucial to make an informed decision that will offer them both security and a steady income.

Evaluating the Post Office Monthly Income Scheme (POMIS)
1. Fixed Returns: The Post Office Monthly Income Scheme (POMIS) provides a fixed rate of interest, which is secure but relatively lower compared to other investment options.

2. Inflation Risk: The returns from POMIS might not keep up with inflation over the long term. This could diminish the purchasing power of the monthly income your parents receive.

3. Lack of Flexibility: POMIS is rigid in terms of liquidity. If an emergency arises, withdrawing money could be cumbersome and might involve penalties.

Advantages of Systematic Withdrawal Plan (SWP) in Equity Mutual Funds
1. Potential for Higher Returns: SWPs from equity mutual funds offer the potential for higher returns compared to fixed-income schemes like POMIS. This could result in a better monthly income over time.

2. Flexibility: SWPs are more flexible, allowing you to choose the withdrawal amount and frequency according to your needs. You can adjust the amount based on your parents’ requirements.

3. Inflation Protection: Equity investments typically offer returns that can outpace inflation. This means that the income your parents receive could maintain or even increase its value over time.

4. Tax Efficiency: Withdrawals from SWPs in equity mutual funds are treated as long-term capital gains after one year, which are taxed favorably compared to interest income from POMIS.

5. Liquidity: SWPs provide better liquidity, allowing you to withdraw the required amount without the hassles of premature withdrawal penalties, which is common with fixed-income schemes like POMIS.

How to Implement SWP for Your Parents
Select a Balanced or Hybrid Mutual Fund: Choose a fund that balances equity with debt, offering growth potential with reduced risk.

Start with a Conservative Withdrawal Rate: A withdrawal rate of around 8-10% per annum (Rs. 8,000 to Rs. 10,000 per month) is sustainable. This will allow the corpus to last longer, potentially growing over time.

Monitor Regularly: Keep an eye on the fund’s performance and adjust the withdrawal amount if needed. This ensures that your parents continue receiving a stable income.

Final Insights
Opting for an SWP in a balanced equity mutual fund is a wise decision for generating a monthly income of Rs. 10-12k for your parents. It offers a combination of flexibility, potential for higher returns, and protection against inflation, which POMIS cannot provide. This approach ensures your parents not only have a steady income but also the potential for their corpus to grow over time, providing them with long-term financial security.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in