Returns of Rs.50,000/- per month

The other day a friend of mine came to me and said “I want to get a steady income of Rs. 50,000/- per month, what should I do?” The option of job or business was ruled out, since he did not want to work for the money, but wanted his money to work for him. Does this not sound like the book “Rich Dad Poor Dad”? I also thought about this book, when he said I have another option of rental income.

He mentioned that rental income was a good option, since he would get regular income as well as appreciation in the value of the property. But here again you would have to keep following up, running to the registrars, brokers around you and other normal fears of getting a good customer etc.

So let us see what other options we could think of for this gentleman. There is this option of interest and dividends. This is a very good option. We have to look at it very carefully. Interest is assured return, nothing to worry. Low risk, steady and assured returns, but returns are usually low. As it is normal, low risk low returns.

We should also look at dividends. Dividends would be of 2 types, shares and mutual funds. The assumption is we look at only those shares and mutual funds which have been giving regular dividends year after year. Yes, we are looking at dividend yield shares.
A thing to remember is Interest is taxable and definite but dividend is tax free but variable.

Taking the points mentioned above into account, a suggestion is invest around 25% of the corpus into fixed income securities taking current scenario into account the post tax return on fixed income securities is around 8%. Another 25% could be put into Income funds, the returns on this is around 10%.

The balance could be put in dividend yield shares and equity mutual funds, the average returns on this is around 15%. Now these are all average returns per annum, taking the economic scenario at any time the return could go up or down.

So if you have a corpus of Rs. 50 Lakhs, you could easily achieve the target of Rs.50,000/- a month. How?

Type of security	Investment	Income per month	Post tax rate of return
Interest bearing securities	Rs.12.50 Lakhs	Rs. 8,333/-	8%
Income funds	Rs.12.50 Lakhs	Rs. 10,417/-	10%
Shares	Rs.12.50 Lakhs	Rs. 15,625/-	15%
Equity Mutual Funds	Rs.12.50 Lakhs	Rs. 15.625	15%
Total	Rs.50.00 Lakhs	Rs. 50,000/-