I am 42 ,me n my family has 8 cr in mf,5 cr property,1 cr in fd ,50 lacs gold , n i have health insurance ,my monthly expense of family is 3 lacs ,please suggest I am planning to quit my job..
Ans: Your financial situation is impressive. You’ve built a strong foundation across multiple asset classes. Here's a detailed review of your portfolio:
Rs 8 crores in mutual funds.
Rs 5 crores in property.
Rs 1 crore in fixed deposits.
Rs 50 lakhs in gold.
Health insurance is in place.
Family's monthly expenses are Rs 3 lakhs.
You are now considering quitting your job. Let's break down the critical factors and give you a clear picture of your financial future.
Monthly Expenses vs. Existing Assets
Your monthly family expenses are Rs 3 lakhs. This translates to Rs 36 lakhs annually. It's crucial to ensure that your investments generate enough returns to cover these expenses without depleting your capital.
The key focus should be on maintaining a steady cash flow to sustain your lifestyle.
While Rs 8 crores in mutual funds and Rs 1 crore in fixed deposits are solid, we need to evaluate their liquidity and returns.
You also need to consider inflation, which will increase your expenses every year.
Evaluating Your Mutual Fund Portfolio
You have Rs 8 crores invested in mutual funds. Let’s look at how this can be optimized for your long-term needs.
Active vs Passive Management: Actively managed mutual funds could offer better returns. Index funds, while low cost, tend to follow market trends. They might not always outperform actively managed funds. Given your goal of quitting your job, maximizing returns is crucial.
Direct vs Regular Funds: If you're investing directly, it could be more taxing for you to monitor the funds. Regular funds managed by a Certified Financial Planner (CFP) offer professional oversight. This ensures your portfolio stays aligned with market conditions and goals.
Debt Allocation: Ensure that a portion of your mutual funds is allocated to debt funds. This will reduce the volatility and provide a steady income. Equity-heavy portfolios can give good returns, but you also need stability, especially when planning to quit your job.
Real Estate: Liquidity and Considerations
Your property worth Rs 5 crores is valuable, but real estate is not very liquid. In case of an emergency, it might not provide quick cash.
Property investments are often illiquid and may not generate regular income unless rented. If there’s no rental income, you should not depend on it for cash flow needs.
While it contributes to your net worth, its direct impact on your monthly cash flow is limited.
Fixed Deposits: Security but Limited Growth
Rs 1 crore in fixed deposits offers stability. However, the returns from FDs are relatively low, especially when you consider inflation.
Interest Income: The interest from your FDs can contribute towards covering your monthly expenses. However, inflation could erode the purchasing power of this income over time.
Inflation Consideration: The average inflation rate in India is about 6-7%. FD returns often do not match up to this, meaning your real returns (after adjusting for inflation) could be negative.
Taxation: Interest earned from FDs is taxable as per your income slab, reducing your net returns. Keep this in mind while evaluating its contribution to your financial goals.
Gold as a Hedge
You have Rs 50 lakhs in gold, which is a great hedge against inflation and market volatility.
Role of Gold: Gold doesn’t generate regular income, but it acts as a store of value. It’s more of a wealth-preservation tool.
Liquidity: Gold can be easily liquidated during times of need, but it’s better to use it as a backup rather than a primary income source.
Health Insurance: Peace of Mind
You already have health insurance, which is excellent. Ensure it covers all major medical expenses and has sufficient coverage for the entire family.
Review Your Coverage: Reassess the sum insured regularly to ensure it matches the rising healthcare costs. Ensure you have family floater health insurance to cover every member.
Post-Retirement Strategy: Generating Regular Income
Quitting your job means you'll need a consistent income stream from your investments. Let’s see how you can plan for this:
Systematic Withdrawal Plan (SWP): A SWP from your mutual fund portfolio can generate a regular monthly income. This would be tax-efficient and can help meet your Rs 3 lakh monthly expenses.
Debt Fund Allocation: Debt mutual funds could provide stability. Returns are lower than equities but more predictable. They can be used for your regular monthly expenses.
Equity Allocation: Equity funds can still be a significant part of your portfolio. Over the long term, they will provide growth and protect against inflation.
Diversification: Ensure that your portfolio is diversified across asset classes—equities, debt, and gold—so that you’re not overly dependent on one type of asset for income.
Adjusting for Inflation
Inflation is one of the most significant risks to your financial security after quitting your job.
Higher Living Costs: Inflation could push your expenses from Rs 3 lakhs to Rs 6 lakhs in 15-20 years. It’s important to plan for this.
Growth-Oriented Investments: To counter inflation, ensure that a good portion of your investments is in growth assets like equity mutual funds. Over time, these should provide returns that outpace inflation.
Managing Taxes
Tax efficiency is crucial when you’re relying on investments for regular income.
Mutual Fund Taxation: Long-term capital gains (LTCG) on equity mutual funds above Rs 1.25 lakhs are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%.
Debt Fund Taxation: Debt funds are taxed as per your income tax slab, so consider this while withdrawing.
Tax Planning: Work with a Certified Financial Planner to minimize your tax outgo and maximize your post-tax returns. It’s important to balance income generation with tax efficiency.
What Should You Do Next?
Here’s a step-by-step approach to help you transition smoothly when you quit your job:
Review Your Current Portfolio: Work with a CFP to review your existing mutual fund portfolio. Shift towards a mix of growth and income-generating funds.
Set Up a Systematic Withdrawal Plan (SWP): This will provide you with a steady monthly income from your mutual funds.
Build a Debt Mutual Fund Cushion: Allocate a portion of your portfolio towards debt funds to reduce volatility.
Ensure Tax Efficiency: Keep an eye on taxes, especially capital gains and interest income. Use tax-efficient strategies to protect your income.
Plan for Inflation: Ensure that a significant portion of your investments remains in growth-oriented assets to beat inflation in the long run.
Finally
Your decision to quit your job is supported by a solid financial base. However, managing your portfolio for regular income, tax efficiency, and inflation protection will be key to sustaining your lifestyle without stress. A clear strategy with professional guidance will ensure a smooth and secure transition into this new phase of life.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Question by PMB on Feb 04, 2023Hindi
