Creating a stable monthly income for retired parents is one of the biggest financial responsibilities many Indians carry. In 2022, a client named Rajes reached out with a simple question:
“I have ₹50 lakh in fixed deposits. Can I invest it in mutual funds to create a fixed monthly income for my father’s retirement?”
Three years later, the strategy we designed for him now generates ₹63,000 every month—a sustainable, tax-efficient, pension-like income stream.
This article walks you through exactly how that was achieved.
The Core Strategy: Using IDCW Reinvestment to Build Units First
The entire plan rested on a smart but often misunderstood mutual fund feature—the IDCW (Income Distribution–Cum–Withdrawal) option with reinvestment.
✔️ Funds Selected
We deployed the ₹50 lakh lump sum in two hybrid funds:
Sundaram Aggressive Hybrid Fund
Edelweiss Balanced Advantage Fund
Both were chosen under Monthly IDCW (Dividend) Reinvestment.
✔️ Why IDCW Reinvestment Instead of Growth?
Most investors look at “growth” options where NAV increases but units remain constant.
However, in IDCW reinvestment:
Dividend is declared per unit
Instead of receiving it in your bank, the dividend is reinvested into the same scheme
This results in continuous addition of units, month after month
This compounding effect is the heart of the strategy.
In simpler words:
More units = Higher future dividend income.
The First 3 Years: Quietly Building Units
For the first three years (July 2022 – July 2025), the plan was to not take any monthly income. Instead, every dividend was reinvested.
Sundaram Aggressive Hybrid Fund
Dividend declared per unit: 23 paise
Initial units: 1.16 lakh
Units after 3 years: 1.60 lakh
Despite NAV increasing modestly (₹25 → ₹28), the unit count grew significantly.
Edelweiss Balanced Advantage Fund
Dividend declared per unit: 15 paise
Initial units: 1.01 lakh
Units after 3 years: 1.30 lakh
NAV remained moderate (₹19 → ₹22), but again, units grew steadily.
Result of 3-Year Accumulation
Original investment: ₹50 lakh
Current value after 3 years: ₹77 lakh
Total units increased substantially in both funds
Dividend per month improved from ₹44,000 → ₹63,000
The Switch: From Reinvestment to Monthly Payout
Once the father officially retired, we changed the mutual fund option from:
➡️ IDCW Reinvestment → IDCW Payout
Now, every month:
Dividend is credited directly to the father’s bank account
The monthly amount: ₹63,000
From the same funds, without selling units
This created a pension-like passive income stream.
Why This Strategy Works So Well
1. Units Grow Faster Than NAV
Hybrid funds don’t see large NAV jumps.
But their regular dividend declarations help accumulate units consistently.
2. Lower Volatility
Hybrid and balanced advantage funds give:
Better risk protection
More predictable dividend patterns
Ideal for retirees.
3. Tax Efficiency
Investing in the father’s name:
Avoided dual taxation for NRI accounts
Lower tax on dividends due to lower income slab
4. Liquidity Anytime
Unlike real estate:
Units can be redeemed partially
Access to emergency funds is easier
No lock-ins
Important Considerations Before Using This Strategy
✔ Choose consistent dividend-paying funds
Look for 4–5 years of uninterrupted dividend history.
✔ Prefer hybrid and multi-asset funds
They offer smoother returns and stable payouts.
✔ Time your switch carefully
Switch too early = less unit accumulation
Switch too late = delayed income
3 years worked perfectly in this case.
✔ Understand tax rules
Especially important for NRIs whose parents live in India.
✔ Always diversify
Never depend on a single scheme or fund house.
Why Not Just Use an SWP (Systematic Withdrawal Plan)?
This is a common question.
SWP and IDCW payout both generate income, but they work differently.
Many investors prefer SWP for flexibility; however, in this specific case, dividend reinvestment gave better unit accumulation and higher monthly payouts.
(A separate detailed breakdown comparing SWP vs IDCW can be written if you want.)
The Final Outcome
Investment Amount: ₹50 lakh
Time: 3 years
Current Value: ₹77 lakh
Monthly Income Today: ₹63,000
Risk Level: Moderate
Flexibility: High
Sustainability: Strong historical track record
In short, with correct planning, a well-structured mutual-fund strategy can create a reliable retirement income—without the need for real estate or ultra-high-risk investments.
Conclusion
This case illustrates a powerful fact:
You don’t need complicated products or high-risk investments to build a monthly pension.
A carefully selected mutual fund strategy can do it elegantly, efficiently, and sustainably.
%20(2).png)
0 Comments