Dhaval Kapadia, Director, Portfolio Specialist, Morningstar Investment Adviser (India) answers queries in The Financial Express, from where the below has been taken.
How should I invest my retirement corpus in mutual funds to generate a regular monthly income?
— C Venkatesh
There are a few pension or retirement funds available on the mutual fund platform. Some of them also provide tax benefits under Section 80C of the Income Tax Act with a deduction of upto ₹150,000 per annum available on the amount invested in such funds.
With regards to mutual funds, pension funds invest in a mix of equity and debt ranging from 30% to 100% in equity and the rest in debt, during the accumulation or pre-retirement phase. It typically goes up to 40% in equity during the post-retirement phase or withdrawal phase.
Post–retirement (at the age of 58 to 65 years), one can withdraw from the scheme using a Systematic Withdrawal Plan, or SWP, either at a monthly, quarterly, semi-annual or annual frequency. The SWP amount can be fixed at the time of retirement and would continue till the investment corpus is exhausted.
Since the corpus is invested in market-linked instruments it could fluctuate based on the market value of the underlying holdings. Based on one’s risk appetite other hybrid funds like Monthly Income Plans, or MIPs, can also be considered, wherein the allocation to equity ranges from 5% to 30% with specific caps or maximum allocation limits to equity.
If a lumpsum investment is made, an SWP could start after three years to avoid higher debt taxation.
