Should I redeem my dividend paying mutual funds and invest in FDs?

I am 82 years old and had invested Rs 19.5 lakh in a balanced fund about two years back and was getting around 10% dividend per quarter. But in the past two quarters, the dividend has drastically come down to 3%, straining my finances. Should I exit the fund and invest in FDs to protect my income and principal?

Jayant R. Pai CFP and Head of Marketing, PPFAS Mutual Fund replies: It is not advisable to rely on equity or balanced mutual fund schemes to earn regular income. Neither the quantum nor the frequency of dividends from such schemes is guaranteed. Also, the net asset value of such schemes reduces in the same proportion as the dividend they declare. So, in effect, you are being paid your own money. Your decision to switch to fixed deposits is sound, in case you desire a fixed income every month. However, in the absence of all your financial information, it is advisable that you consult a financial adviser and undertake an asset allocation exercise to make the correct investing decision.

I am a 52-year-old homemaker. I recently received Rs 50 lakh as my share in an ancestral property. How should I invest this sum to earn a monthly pension of Rs 50,000?

Prableen Bajpai Founder, Managing Partner, FinFix Research & Analytics replies: A monthly pension of Rs 50,000 means earning an annual return of Rs 6 lakh on Rs 50 lakh. This 12% return may be possible, only if you invest in equity for the long term. If you need the income to manage household expenses, it is advisable that you take a conservative approach: Invest in a mix of fixed income and debt products such as Post Office Monthly Income Scheme (POMIS), accrual funds and bank fixed deposits. If the investment is aimed at earning a supplementary income, then you can follow the '100 minus your age' rule for asset allocation. This means splitting your investment between equity and fixed income assets-48% in equity in your case. Within equity, opt for large-cap funds while for debt investment you may opt for a combination of POMIS and accrual funds. To ensure regular cash flow, you will have to opt for systematic withdrawals from your equity and debt investments. A return of 8% is more realistic and will fetch you Rs 33,000 every month.