Where can I make a long-term investment that generates regular income immediately?

If I have to invest a lump sum amount of Rs 3 lakh, would an index fund be suitable or an SWP, where a fixed monthly or quarterly amount keeps coming and I keep getting the benefit of compounding over a long period of time? - Anonymous

First and foremost, let's clarify a few things.

An index fund is an investment vehicle that tracks an index such as Nifty 50 or Sensex. On the other hand, SWP (systematic withdrawal plan) is a method of redeeming your investments over time. By investing in an index fund, you can expect returns similar to the index it tracks. With SWP, you can withdraw a specific amount of money periodically, for example, withdrawing Rs 1 lakh over 10 months where you receive Rs 10,000 each month.

If you have a lump sum amount and you plan to invest it in an equity fund, it's advisable to spread it over six to 12 months through a SIP (systematic investment plan).

To set up a regular income plan, you can follow these broad principles:

• Invest one-third of your money in equities, preferably flexi-cap funds. Conservative investors can even choose a large-cap fund or an index fund.
• Invest your annual income needs in a liquid fund, ideally not more than 6 per cent of your total investment corpus.
• Invest the remaining amount in fixed income, preferably short-duration funds.
• Rebalance your portfolio each year by ensuring that equities have a 33-35 per cent allocation.
• Each year, transfer the amount of annual income you need to liquid funds, which should be increased by 5 per cent each year.
• However, make sure that your withdrawal each year is no more than 6 per cent of your total investment corpus.

Want to know which funds to invest in? Explore our Analysts' Choice section that offers a list of funds handpicked by our researchers.

Alternatively, if you prefer a personalised portfolio, take a glance at our Portfolio Planner.

Suggested read: How can a senior citizen generate regular income?