How to generate regular income from Mutual Funds?

Investors especially those who are retired or are nearing retirement wish to have a regular income. Can mutual funds help you achieve the same? Stay tuned to find out.

When it comes to planning for retirement, it is divided into two phases, one is the accumulation and another is the distribution phase. The accumulation phase is a pre-retirement phase wherein the investor starts planning and saving for his retirement. The distribution phase is a post-retirement phase where investors channelize to spend their accumulated corpus in a well-planned manner.

Moreover, as per the world bank’s report that was released in the year 2019, the average life expectancy in India is 70 years. However, the life expectancy of the urban population would be around 80 to 90 years. Therefore, if we assume the retirement age to be 60 years, the post-retirement period is almost near to that of the accumulation phase. And with no proper pension system in place, it becomes important for an investor to plan for his retirement.

How to plan retirement with mutual funds?

A mutual fund is one such investment avenue, which offers products that suit most of the retail investors' requirements. When it comes to planning for retirement, you need to understand whether you are in accumulation or are nearing the distribution phase. If you are in the first half of the accumulation phase, then having an equity tilted portfolio is more appropriate and if you are in the second half of the accumulation phase, then investing in a good mix of equity and debt would make sense. That being said, the allocation between the equity and debt would depend on the investor’s risk profile.

However, if you are in the distribution phase or nearing the same, then you should plan to channelize the accumulated amount. The best way to do this is to have a bucket strategy in place. In this strategy, you majorly create three buckets of time horizon, one is for short-term (three years), one is for medium-term (next seven years) and finally long-term (for remaining years).

For the short-term bucket, investing in a mix of corporate bond funds, liquid funds and short duration funds would be ideal. For the medium-term, investing in a good mix of equity and debt makes more sense, whereas for equity you can consider investing in index funds and large and midcap funds. Aggressive investors can replace large and midcap funds with only midcap funds. On the debt side, corporate bond funds and short-duration funds would make sense. Conservative investors can consider investing in a balanced advantage fund for equity allocation. For the long-term, have an equity tilted portfolio. Though we recommend avoiding investing in smallcap funds, aggressive investors can invest in them with an allocation of not more than 15% of their portfolio.