Are there products currently available where an investor could invest lump sum & get the returns on monthly basis akin to pension? As per my understanding such monthly receipts are going to be subject to tax as per prevailing laws.

Ans: Invest in SIP of good fund house in Midcap, small cap & Large & Mid cap fund for 5k each

Ans: Given your father's priorities of low risk and beating inflation, here are a couple of good options for him to consider investing his Rs 10 lakh corpus for monthly income:

1. Senior Citizen Savings Scheme (SCSS):

• This is a government-backed scheme specifically designed for senior citizens (above 60 years).
• It offers a relatively high and stable interest rate (currently 8.2% per annum).
• Interest is paid quarterly, but can be used to generate a monthly income by dividing it into three parts.
• There is a maximum investment limit of Rs 15 lakh.
• The scheme has tenure of 5 years, with an option to extend for 3 more years.

2. Pradhan Mantri Vaya Vandana Yojana (PMVVY):

• This is another government-backed scheme specifically for senior citizens. Do note that the scheme's availability may be limited based on the date of your inquiry (April 10, 2024).
• It offers a fixed interest rate (currently 7.4% per annum) for a 10-year policy term.
• The interest can be paid monthly, quarterly, half-yearly, or yearly.
• There is a maximum investment limit of Rs 15 lakh.

Additional factors to consider:

• Tax implications: Interest earned from both schemes is taxable as per your father's income tax slab.
• Liquidity: SCSS offers more flexibility as the principal amount can be withdrawn prematurely with a penalty. PMVVY has limited liquidity options.

Recommendation:

Both SCSS and PMVVY are good options for your father depending on his preference for interest rate (higher with SCSS but not fixed) vs. guaranteed income (PMVVY with a fixed rate for 10 years).

It's advisable to consult a financial advisor for personalised advice considering your father's overall financial situation and risk tolerance.

Ans: It's excellent that you've made profits from the stock market. Now, focusing on generating a steady monthly income from those gains is a prudent approach. The key is to balance safety, tax efficiency, and consistent returns. There are several investment options to consider that can help achieve this.

Here, I'll walk you through a few options, each offering regular payouts while aiming for tax-efficient and relatively safe returns.

Consider a Systematic Withdrawal Plan (SWP)
A Systematic Withdrawal Plan (SWP) in mutual funds is one of the best ways to generate regular monthly income from your stock market profits.

How SWP Works:
You invest a lump sum in a mutual fund, usually a mix of debt and balanced hybrid funds to ensure safety and growth.

You can choose a fixed amount to withdraw monthly, and the remaining funds continue to earn returns.

Benefits of SWP:
Tax Efficiency: Only the capital gains on the withdrawn amount are taxable, not the principal. For long-term capital gains in equity mutual funds, the tax rate is 12.5% for gains exceeding Rs 1.25 lakh, and in debt funds, it’s asper your income tax slab rates. This is more tax-efficient than regular income schemes like FDs.

Inflation-Adjusted Returns: Since you are investing in mutual funds, the remaining corpus grows, allowing the potential for inflation-beating returns over time.

Flexibility: You can increase, decrease, or stop withdrawals based on your needs, unlike fixed-income instruments where returns are locked.

Recommendation:
Hybrid funds offer a balance between safety (debt) and growth (equity). These funds usually provide stable returns with reduced market risk.
Post Office Monthly Income Scheme (POMIS)
The Post Office Monthly Income Scheme (POMIS) is a safe, government-backed option that offers monthly payouts.

How it Works:
You invest a lump sum in POMIS, and the scheme pays out monthly interest.

The tenure is 5 years, after which you can reinvest if needed.

Benefits:
Safety: It’s a low-risk investment, fully backed by the Government of India.

Decent Returns: The interest rate is better than most fixed deposits but lower than market-linked investments like mutual funds.

Drawbacks:
Taxable Interest: The interest earned is fully taxable as income under your tax slab, which can reduce the effective returns.

Lock-in: Your capital is locked for 5 years, limiting flexibility.

Investing in Debt Mutual Funds
If you are looking for safe returns, debt mutual funds are an attractive alternative to traditional FDs. They invest primarily in bonds, government securities, and corporate debt, ensuring lower risk than equity-based investments.

How Debt Mutual Funds Work:
You can invest a lump sum in debt funds, and they generate regular interest income.

You can use the SWP feature to withdraw monthly.

Benefits:

Safety: Debt funds are considered safer than equity and offer predictable returns. However, they are subject to interest rate risk and credit risk.

Liquidity: You can withdraw your money anytime, providing more flexibility than traditional FDs or annuity plans.

Investing in Dividend-Paying Mutual Funds
Another approach is to invest in dividend-paying mutual funds. These funds distribute the profits earned by the mutual fund in the form of dividends.

How Dividend-Paying Mutual Funds Work:
You invest a lump sum in a mutual fund, and the fund declares dividends when there are profits.

These dividends are not fixed, but you can expect periodic payouts.

Benefits:
Regular Income: While the dividends are not fixed, they can offer periodic income.

No Lock-In: Unlike other income plans, you are free to redeem your investment anytime.

Drawbacks:
Tax on Dividends: Dividends are now taxed as income under your regular tax slab, which may reduce the appeal for those in higher tax brackets.

Uncertain Payouts: Dividends depend on the performance of the fund, and there’s no guarantee of a specific payout.

Use of Fixed Deposits (FDs) for Stability
Although fixed deposits (FDs) offer lower returns, they can be used to create a portion of your income stream.

How FDs Work:
You invest a lump sum in a bank FD, and you can opt for monthly interest payouts.
Benefits:
Safety: FDs are one of the safest instruments, especially with deposits insured up to Rs 5 lakh.

Guaranteed Returns: The interest rate is fixed, so your income is predictable.

Drawbacks:
Low Returns: Returns are lower than mutual funds or debt instruments.

Taxable Interest: Interest income from FDs is fully taxable as per your income tax slab, making it less efficient compared to other options.

Final Insights
For safe and meaningful monthly returns, consider a mix of Systematic Withdrawal Plans (SWP) in mutual funds, debt mutual funds, and government-backed schemes like the Post Office Monthly Income Scheme. This approach ensures tax efficiency, flexibility, and steady income without locking your money in long-term low-yield options like annuities or FDs.

You can start with a balanced mutual fund through SWP for moderate risk and better growth. Supplement this with safe options like POMIS and FDs for a diversified strategy that balances risk and returns.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
Instagram: https://www.instagram.com/holistic_investment_planners/

Ans: Hello;

Investment in mutual funds can lead to capital erosion, irrespective of the type of fund, since corpus of mutual funds are invested in the stock, bond or bullion markets which are fraught with risks.

You may invest your corpus in conservative hybrid debt type mutual funds which has higher exposure to debt and lesser exposure to equity.

Even in debt allocation choose fund that has higher allocation to Sovereign securities, PSU bonds and AAA rated corporate bonds.

Do an SWP at the rate of 3-4% pa and not more.

Best wishes;
@mars_invest