Hello Jinal, I have a query regarding which is right approach of mentioned two options -I want generate quarterly payout of 15k from a lumpsum investment of 5.5 lac. This is for paying school fees. I'm confused if to invest this lumpsum in a Balanced advanced fund and set up an SWP of 15k quarterly (OR) to put it in a non-cumulative FD that pays out quarterly interest. I'm okay to stay invested for 6 years. Although FD provides the capital preservation but lags in capital appreciation where as BAF has the risk but with time horizon of 6 years, it shall mitigate risk & most importantly returns will still be favourable due to equity component as kicker in BAF Mf's. Your thoughts please... Thank you
Ans: You want to generate Rs. 15,000 quarterly from a Rs. 5.5 lakh investment over 6 years to fund school fees. You’re considering two options—Balanced Advantage Fund (BAF) with SWP or Non-Cumulative Fixed Deposit (FD) with quarterly interest.
Let’s assess both approaches from a 360-degree personal finance lens.
Understanding the Core Objective
Your main goal is to receive Rs. 15,000 every quarter, reliably.
The investment horizon is 6 years, which is medium-term.
You are open to limited risk, but also want better growth than FD.
Capital preservation and growth—both are key goals.
Key Features of Quarterly FD Option
FDs offer guaranteed interest payouts every quarter.
Capital stays safe from market risks.
FD interest is taxed as per your income slab. So, post-tax return may be low.
It provides zero growth in capital. After 6 years, capital remains Rs. 5.5 lakh.
Current FD rates for 5–6 years are in the 6.5% to 7.25% range (subject to change).
Liquidity is low. Early withdrawal has penalties and breaks the flow.
Key Features of Balanced Advantage Fund (BAF) with SWP
BAFs are hybrid mutual funds. They manage mix of equity and debt.
They reduce equity exposure during high market levels. This lowers risk.
At low market levels, they increase equity. This adds return potential.
You can set SWP of Rs. 15,000 every quarter, giving regular cash flow.
Over 6 years, the fund also aims to grow your capital.
You are not only preserving capital, but trying to grow it slowly.
Your Understanding of BAF is Right
You mentioned equity kicker in BAF. Yes, it can help over 6 years.
Markets may go up and down, but hybrid approach smoothens volatility.
The longer you stay, the better BAFs can manage risk and return.
Tax Comparison – FD vs BAF
FD interest is taxed fully as per your slab. There’s no indexation or benefits.
For BAF, SWP is partly capital and partly gains. Tax applies only to gains.
STCG (less than 1 year) is taxed at 20%.
LTCG (above 1 year) is tax-free up to Rs. 1.25 lakh per year.
Above that, LTCG taxed at 12.5%. Still better than slab rates in most cases.
This makes BAF more tax efficient for many investors.
Assessing Risk and Return Over 6 Years
FD return is fixed and certain, but limited to interest rate.
In 6 years, FD may not beat inflation after tax.
BAF carries some market risk. But over 6 years, risk reduces.
BAF offers chance to grow your capital while giving regular income.
Even if SWP withdraws a part of capital, growth may still preserve value.
Cash Flow Stability for School Fees
FD gives fixed interest. You know exact income every quarter.
BAF SWP gives similar predictable payout, but with more flexibility.
You can change the SWP amount any time. You can also stop or increase.
That flexibility helps if your needs or markets change.
Liquidity, Flexibility and Control
FD locks your money. Premature exit reduces return.
BAF is fully liquid. You can redeem or adjust any time.
SWP in BAF gives you greater control over your money.
You are not bound by interest cycle or maturity terms.
Mental Comfort and Emotional Fit
FD gives peace of mind to risk-averse investors.
If fear of market loss is very high, FD feels safer.
But your thinking shows you are open-minded and practical.
You understand time horizon matters in risk management. That’s a strong point.
Should You Choose FD or Balanced Advantage Fund?
Let us now weigh the two options with key points:
Choose FD If:
You want absolute safety and cannot accept any capital fluctuation.
Your tax slab is low, so post-tax FD return is still okay.
You are not concerned about capital growth after 6 years.
You want no link to markets, even if return is lower.
Choose BAF with SWP If:
You want quarterly income + capital growth.
You are ready to accept minor short-term ups and downs.
You want higher post-tax returns over 6 years.
You value liquidity, flexibility, and future adaptability.
Suggested Strategy for More Balance
You can also consider combining both:
Put Rs. 3.5 lakh in BAF, set up SWP for Rs. 15,000 quarterly.
Keep Rs. 2 lakh in FD, for comfort and emergency use.
This gives you better returns and peace of mind.
If needed, the FD can also fund any shortfall from SWP.
Over time, you’ll develop confidence in mutual fund-based income plans.
Long-Term Behavioural Benefits
This is also a good time to build investment experience with BAF + SWP.
It helps you prepare for future retirement planning using same structure.
You’ll understand volatility, tax benefits, and fund performance better.
Why You Should Avoid Direct MF Plans
Direct plans do not offer personal guidance or periodic portfolio checks.
You miss out on ongoing advisory support.
Investing through an MFD with CFP credential ensures structured planning.
You get regular review, goal tracking, and adjustments as needed.
Also, in SWP, you need timely rebalancing. That guidance comes only in regular plans.
Disadvantages of Index Funds for SWP
Index funds blindly follow market movements.
They cannot shift between equity and debt as per market cycle.
During falls, index funds lose more. Recovery takes time.
SWP from index funds in such periods can erode capital fast.
BAFs manage this better with dynamic asset allocation.
Actively managed hybrid funds with skilled fund managers are more stable.
How to Implement This in Practical Steps
Start with Rs. 5.5 lakh in a Balanced Advantage Fund through MFD.
Choose regular plan to get CFP-guided service and tracking.
Set up quarterly SWP of Rs. 15,000, starting after 1 month.
Review every 6 months with your MFD.
Keep separate small contingency fund for any shortfall or delay.
Keep This in Mind While Starting
First few quarters may see capital dips if market is volatile.
But do not panic. BAFs balance risk automatically over time.
After 2-3 years, growth usually covers earlier volatility.
Always keep a small buffer amount aside outside of MF.
Finally
Your plan is well-thought and practical.
Balanced Advantage Fund suits your 6-year goal and quarterly payout.
You get capital growth, steady income, and better tax efficiency.
FD is safer but gives lower overall benefit.
Your confidence in equity as a kicker is right and realistic.
Choose SWP in BAF via regular plan with an MFD having CFP qualification.
It will help you balance return, risk, and tax effectively.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Question by Panduranga on Feb 20, 2023English
