I want to invest 3 Lacs for 5 years and need monthly income of around Rs. 2200 - kindly suggest me funds

You want Rs 2,200 monthly income from investment of Rs 3 lacs. This means that you need an annual yield of 8.8%. If your primary need is income and not capital appreciation, debt mutual funds are the best investment options for you. Your fund selection should be based on your risk tolerance level.

Within debt funds, if you are a conservative investor then accrual based debt funds should be the ideal investment choice. These funds have very little interest rate risk and can give stable returns. Over the last 5 years short term debt funds gave average annualized returns of 9%. Top performing short term debt funds gave 9.5 to 10% returns in the last 5 years. However, due to the likelihood of yields reducing over the next 1 to 2 years or even longer, as RBI cuts interest rates, there is a possibility that, the near term to medium returns may be a little lower than the historical returns. To review top performing short term debt funds, please see our article, Top 5 short term debt mutual funds in 2015.

If you have appetite for some volatility, then income funds can give higher returns than short term debt funds. Over the last 5 years income funds gave average annualized returns of 9.4%. Top performing short term debt funds gave double digit returns in the last 5 years. However, please note that, income funds are sensitive to interest rate movement and there will be some volatility in your investment values. With the possibility of interest rates coming down in the future, income funds can outperform short term debt funds. To review top performing income funds, please see our article, Top 6 long term income funds in 2015.

If you can take a little more risk, then debt oriented hybrid mutual funds can give you both monthly income and there is also the possibility of getting some capital appreciation. Around 70 – 80% of the investment portfolio of debt oriented hybrid mutual funds are allocated to debt investments, while 25 – 30% are allocated to equity investments. The debt portion provides stable income and the equity portion can give you some capital appreciation. While equity is certainly more risky than debt, since debt allocation is high, the investment risk is much lower than equity oriented mutual funds. Also, over a 5 year investment horizon the equity portion of the portfolio can give a good kicker to the returns, especially with the revival of economic and corporate earnings growth in India. Over the last 3 to 5 years top performing debt oriented hybrid funds have given annualized returns of 10 – 12%. To see the top performing debt oriented hybrid funds, please go to our research section, Top Performing Mutual Funds - Hybrid Debt Oriented Funds.

To get monthly income from your investment, Systematic Withdrawal Plan is the one of the best options. SWP not only gives you stable, fixed monthly cash flows, but it is also the most tax efficient option (please see our articles, Systematic Withdrawal Plans from Debt Mutual Funds give the most tax efficient income and SWP from Debt Mutual Funds give the most tax efficient income over fixed deposits). You should consult with your financial advisor and select the most suitable fund for your needs.