30-Year-Old With 1 Crore Seeks High Monthly Returns With Low Risk: What Are My Options?

Ans: With Rs 1 crore to invest, your main goal is to get a steady monthly return with minimal risk. At the same time, you want the principal to grow to keep up with inflation. Balancing these needs requires careful planning and choosing the right investments. It is essential to consider options that provide regular income while maintaining low risk.

There are various ways to achieve your goal. Let’s explore a few strategies that might work for you.

Evaluating Your Risk Tolerance
Since you prefer low risk, high-return investments may not be suitable. Generally, low-risk investments provide more stable returns but with lower growth potential. Identifying your risk tolerance is crucial. You need options that strike the right balance between safety and growth.

Risk tolerance can be broken into three levels:

Low Risk: Secure investments but with limited returns.
Moderate Risk: Some fluctuations, but more potential for growth.
High Risk: More volatility but higher return potential.
Since you aim for a low-risk strategy, we’ll focus on secure investments. But at the same time, it’s important to ensure inflation doesn’t erode your purchasing power over time.

Diversification of Investments
Diversifying your portfolio will help reduce risk while allowing steady income. The key is not to rely on a single investment avenue. You can mix various options to create a stable monthly income stream.

Consider the following investments:

Debt Mutual Funds: These are a good option for stable returns. Debt funds invest in government securities, corporate bonds, and money market instruments. They usually have lower risk than equity funds. Plus, they can provide consistent monthly returns when combined with a Systematic Withdrawal Plan (SWP).

Balanced Advantage Funds: Balanced Advantage Funds adjust their equity and debt allocation based on market conditions. This can offer a mix of stability and growth. They have lower volatility than pure equity funds, making them a suitable low-risk option.

Fixed Deposits (FDs): A significant portion of your portfolio can be placed in FDs. FDs provide guaranteed returns and are very secure. However, they may not keep pace with inflation, and the interest earned is taxable. Keeping a portion in FDs ensures security but shouldn’t be your only investment.

Monthly Income Plans (MIPs): MIPs are hybrid debt-oriented mutual funds that offer monthly payouts. They can give you a steady income, and the risk is relatively low compared to equity funds. But the monthly returns are not guaranteed, as they depend on the performance of the underlying assets.

SWP in Mutual Funds: You can set up a Systematic Withdrawal Plan (SWP) with mutual funds to receive regular payouts. SWPs allow you to withdraw a fixed amount from your mutual fund investment at regular intervals, providing you with a steady income stream.

By diversifying across these categories, you reduce your overall risk while maintaining monthly returns.

Disadvantages of Index Funds
Many investors consider index funds for their simplicity. However, for your low-risk objective, actively managed funds through a Certified Financial Planner can be better. Index funds follow the market, which means you are exposed to more volatility. When the market goes down, so do your returns.

Active fund managers adjust portfolios based on market conditions. This can help reduce downside risks. Investing in regular plans with a Certified Financial Planner allows for a more guided approach. It also gives you access to expert advice on managing risks and returns.

Surrendering Traditional LIC Policies
If you hold any investment-cum-insurance policies, it might be worth reconsidering their value. These plans often provide lower returns compared to mutual funds. You could consider surrendering such policies and reallocating the funds into mutual funds or other efficient investments. Traditional insurance policies mix insurance with investment, which might limit your overall returns.

Separating insurance and investment is usually more beneficial. Term plans provide higher coverage at lower premiums. The savings from these policies can then be invested in high-growth funds for better returns.

Certified Financial Planner for Expert Guidance
Investing through a Certified Financial Planner has several benefits over direct investments. A Certified Financial Planner will help create a diversified portfolio aligned with your financial goals. They offer personalized advice and can regularly review your portfolio for necessary adjustments.

When you invest through a Certified Financial Planner, you have access to their expertise, especially in managing risk and optimizing returns. They can help you pick the right mix of funds and guide you through tax planning and withdrawal strategies.

Direct plans may save on commission, but the expertise provided by a Certified Financial Planner often leads to better returns in the long term. In your case, where the focus is on low-risk, steady returns, a Certified Financial Planner’s insights can be particularly valuable.

Taxation of Mutual Funds
Understanding the taxation of your mutual fund investments is important. The tax rules for both equity and debt funds affect your overall returns.

For equity mutual funds, long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%. For debt mutual funds, LTCG and STCG are taxed based on your income tax slab. Since your goal is regular income, tax-efficient withdrawals will help you maximize returns.

By withdrawing strategically, such as limiting your LTCG to Rs 1.25 lakh per year, you can reduce your tax burden.

Benefits of SWP (Systematic Withdrawal Plan)
If you’re looking for regular income, SWP is a great option. It allows you to withdraw a fixed amount at regular intervals, providing you with consistent income while your investment keeps growing.

Benefits of SWP include:

Predictable Cash Flow: You get a fixed income at regular intervals.
Flexibility: You can choose the frequency and amount of withdrawal.
Tax Efficiency: Only the gains from your withdrawals are taxable, not the entire amount.
Capital Appreciation: While you withdraw, the rest of your investment keeps growing.
This makes SWP one of the most efficient ways to generate income while keeping your principal investment relatively safe.

Importance of Liquidity
Since you aim for regular returns, liquidity is essential. You may need access to your money for unforeseen circumstances. Investments like FDs or debt funds offer easy liquidity, allowing you to access funds quickly if required.

You don’t want all your money locked into long-term investments that penalize you for early withdrawal. By keeping a portion of your portfolio in liquid assets, you have flexibility. It’s also easier to rebalance your portfolio if market conditions change.

Emergency Fund
It’s always wise to keep an emergency fund aside. This is especially important when you rely on your investments for monthly income. Your emergency fund should cover at least 6-12 months of your expenses.

This fund should be highly liquid, such as in savings accounts or FDs. This will ensure you’re prepared for any financial emergencies without having to disturb your main investments.

Low-Risk Investment Strategy
For maximum monthly returns with low risk, your portfolio should be a combination of debt funds, balanced advantage funds, and fixed deposits. This combination ensures you have both stability and growth. The returns won’t be volatile, and your capital will be well-protected.

Your approach should focus on safe investments that yield consistent returns. But at the same time, inflation must be considered. Debt funds and balanced advantage funds are both relatively safe, and they will give you better returns than FDs in the long run.

Final Insights
Investing Rs 1 crore with low risk and generating monthly income requires a well-balanced portfolio. Diversifying across low-risk debt funds, balanced advantage funds, and fixed deposits will provide stability and consistent returns.

Avoid direct plans and index funds due to their limitations. Instead, consider actively managed funds through a Certified Financial Planner. They can help structure your investments and ensure you meet your financial goals efficiently.

Focus on liquidity, tax efficiency, and keeping an emergency fund in place. This will ensure financial security and steady income without unnecessary risks.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment