Monthly income plans do not guarantee a regular income

This option can’t be used to ensure that a particular monthly cash flow requirement can be reliably met


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I have no experience in investing, but I wish to start a systematic investment plan (SIP) and am having trouble finding the right financial expert. Are online investment services reliable? If I don’t have any immediate financial goals, how should I choose my funds?

—Aishvarya P.

Online investment services offer the convenience of digital, paperless investing and ease of management. Using automated, system-driven methods of fund selection, many of them also offer consistent, unbiased advice in terms of designing portfolios. However, most of them offer advice only on the products available on their platform. So, if you need a comprehensive financial planning guidance, you might want to seek the services of a financial adviser. On the other hand, if your aim is to get started with a good investment plan quickly and conveniently, an online investment service would be a good choice.

On financial goals, while it is good to have a well thought out investment plan, it is not a must-have to get started. You can start by figuring out how much money you can save and invest every month. Once you know that, you can create a good portfolio (of not more than 4-5 funds) using the Mint50 list of curated funds (http://bit.ly/1TGY5e4 ). As a young investor, which you seem to be, choose an investment time frame of minimum 10 years. Starting investing early and staying invested as long as you can in a systematic way is the smartest way to grow your money and creating wealth for yourself.

I am nearing retirement. I want to receive monthly fixed income from my investments. Can I invest in monthly income plans for this purpose? I have read that they have monthly dividend options. Will this ensure my cash flow is met?

—Kanishk Shyamali

Monthly income plans (MIPs) are simply mutual funds that belong to the debt-oriented hybrid fund category. Despite what the name says, they do not guarantee monthly income to the investor in any way. While it is true that many of them offer monthly dividend plans, the amount of dividend issued every month is likely to fluctuate quite a bit. Hence, this option can’t be used to ensure that a particular monthly cash flow requirement can be reliably met. Also, while some funds have a good track record of paying such dividends regularly, there is no guarantee that they will continue to do so in future.

But these do not imply that MIPs are not a good option for investment for conservative investors. On the other hand, with beneficial tax treatment (for long-term gains) and a sizable equity component, they can be useful instruments. Instead of considering dividends as the source of income, it would be better to use the systematic withdrawal plan. This method of funding cash flow would ensure a steady, constant and tax-friendly method of making withdrawals from such investments.

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