Q. I am a 45-year-old businessperson. I want to invest in mutual funds to diversify my investment portfolio. I have a net worth of ₹50 crores and I am interested in funds that offer a regular stream of income. Please recommend.
Given your specific requirement, hybrid mutual funds would be the ideal choice for you. These funds are called hybrid because the assets are allocated between equity and debt asset classes. An equity-oriented hybrid fund invests at least 65% in equity and equity-related instruments while the balance are invested into debt securities and money market instruments.
On the other hand, a debt-oriented hybrid fund invests at least 70% or above in fixed-income securities (like bonds, debentures, government securities, etc.) while the remaining is invested into equity and equity related instruments.
Along with long-term growth, these funds offer you a regular stream of income either through dividends payout or systematic withdrawal plan (SWP) option. Based on the tenure of your investments and the quantum of your cash flow needs, you may set up a SWP to supplement your regular income.
Dividends may not be an appropriate option because the payout amount is not fixed and is taxed at the individual tax slab rate. Furthermore, the frequency with which dividends are paid out varies between schemes. With the SWP option, you can specify the payout amount and frequency.
Equity savings hybrid funds offer higher rates than bank deposits but are subject to equity taxation. The risk of being exposed to equity market volatility, on the other hand, is limited.
After at least one year, it is best to withdraw from any mutual fund. Otherwise, the principal will be lost. While the cash flow generated by SWP is not taxable, the principal invested is taxed on capital gains. For earnings exceeding a lakh in a fiscal year, funds held for more than a year are subject to a 10% capital gains tax.
Please note that any investment must be made after professionally assessing your goals, your income level, your net worth, and your risk appetite. A financial advisor will be able to consider all factors and then recommend the right mix of products to suit your goals.
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