How To Get Monthly Income From Investments In India

Investments in the stock market can be categorized as either long-term investments or short-term investments.

However, the investor has to be aware that short-term investments are not suitable for long-term investors.

Investments in stock market are by and large classified into 4 different classes:

  1. Long Term
  2. Short Term
  3. Medium Term
  4. Long Term

The longer the investment period, the lower the potential income for the investor. However, income is also one of the factors considered while investing in stock market.

The amount of money that you can generate through a long-term investment is expressed as dividend rate (or a dividend yield).

Also, the amount of income that you will earn over a long-term investment is a function of various factors.

E.g. higher dividend rate offered by a company if the company is well-run and has a strong competitive advantage will increase the income from the stock.

There is a limited number of companies that offer a high dividend yield at the moment

mark, marker, hand

As such, the investor has to diversify his portfolio across sectors and companies to generate a sufficient dividend yield and reduce the risk of dividend cut.

This investment is suitable for long-term investors with a minimum investment limit of Rs. 500,000, if not much higher.

Note that if you are a current income tax payer in India, you are not eligible to invest in this type of stock.

  • Investment Amount: Rs.500,000
  • Tax Liability: Nil
  • Dividend Rate: 8.36%
  • Monthly Income: Rs.60,000 – 70,000

As the proverb says: "Money does not grow on trees"

money, bank, deposit

That might be true in the real world and it might not be true in financial markets. There are various ways to ensure that your money is safe and growing.

One of them is to ensure that you are paying regular income to yourself or somebody else.

It could be monthly or quarterly, it might be quarterly but not monthly. That's entirely up to you.

Financial advisor Warren Buffett is a big proponent of paying yourself an extra dividend each year because he believes that it keeps your interest in the stock market high and keeps you coming back for more.

However, when you are deciding who to pay the dividend to, it is important to make sure that the person or entity you decide to pay the dividend to is going to receive the dividend at least once a year.

Otherwise, you are essentially rewarding yourself twice a year.

Furthermore, you have to be consistent and committed to putting aside money consistently throughout the year for the dividend payment.

Many people tend to miss their income payment altogether and end up with the dividend being paid to somebody else.

Therefore, it is important to make sure that you do have a person or entity you can pay the dividend to, because without that someone else will just be wasting the dividend payment and you will not see the benefit of the dividend payment.

Therefore, there are several ways to set up recurring income for a recurring expense. I will briefly discuss three of them in this article: dividends, interest and rent.

Dividends

The simplest way to get a regular income is to invest in dividend paying stocks.

The three dividend investing funds available in India are HDFC Direct Equity Fund, Reliance Equity Fund and UTI Share Fund. These are three of the best dividend funds available in India.

Currently, all three are on a monthly payout. However, you can also opt to reinvest your dividends and continue to get a regular income stream.

You will have to keep reinvesting dividends at regular intervals. Therefore, if you do choose to reinvest dividends regularly, you will have to get used to reinvesting your dividend at regular intervals.

If you don't want to invest at regular intervals, you can continue to take regular dividends.

Interest

coins, currency, investment

Interest is another kind of recurring income you can get from investments. For this purpose, I will be discussing the interest received from fixed deposits.

For other types of fixed deposits, you will need to check with your bank.

Investment bank fixed deposits, where interest is paid monthly, are usually more tax efficient than traditional banks.

However, the interest rates on these accounts are lower than on regular bank accounts. Therefore, you will need to put more money aside to get the interest from fixed deposits than from other options mentioned here.

As a result, you will need to deposit more money with the investment bank fixed deposit scheme than with a regular bank account.

For this reason, your interest income from interest will be less than with the regular bank account. However, if you were to do the math, you will realise that the interest income from fixed deposits will actually be higher in the long term.

That is because there is always the chance that the interest rates might increase in the future.

Rent

You can also get a regular source of recurring income from rent. But, this is not as straightforward as the other two options I have discussed.

 

 

 

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