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Ramalingam

Ramalingam Kalirajan  |7012 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 23, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Mar 13, 2024Hindi
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I have 30 Lakhs in FD should i go for SWP or keep it in FD only

Ans: Evaluating SWP vs. Fixed Deposits for Your 30 Lakhs
Deciding between a Systematic Withdrawal Plan (SWP) and Fixed Deposits (FDs) requires careful consideration. Let's assess both options to determine the best approach for your financial goals.

Understanding SWP and Fixed Deposits
SWP: Involves withdrawing a fixed amount regularly from your investment, typically from mutual funds, to meet financial needs.

Fixed Deposits: Offer a fixed interest rate over a specified period, providing stable returns with minimal risk.

Assessing Your Financial Needs
Before making a decision, consider your financial requirements and risk tolerance:

Income Needs: Determine the amount you require regularly for expenses or other financial goals.

Risk Tolerance: Assess your comfort level with market fluctuations and potential variations in returns.

Advantages of SWP
SWP offers several advantages for investors:

Regular Income: Provides a steady stream of income to meet your financial needs.

Flexibility: Allows customization of withdrawal frequency and amounts based on your requirements.

Potential for Growth: Depending on the underlying investment, SWP offers the potential for capital appreciation over time.

Benefits of Fixed Deposits
Fixed Deposits also have their merits:

Stability: Fixed interest rates offer stability and predictability of returns, suitable for conservative investors.

Capital Preservation: FDs provide capital protection, ensuring the safety of your principal amount.

Guaranteed Returns: Unlike market-linked investments, FDs guarantee fixed returns regardless of market conditions.

Disadvantages of SWP
Despite its benefits, SWP has some drawbacks:

Market Risk: Withdrawals from market-linked investments are subject to market fluctuations, impacting the withdrawal amount.

Tax Implications: Capital gains tax may apply to SWP withdrawals, affecting overall returns.

Complexity: Requires monitoring of investment performance and withdrawal rates, adding complexity to financial planning.

Drawbacks of Fixed Deposits
Fixed Deposits also come with limitations:

Low Returns: Fixed interest rates may not keep pace with inflation, leading to erosion of purchasing power over time.

Liquidity Constraints: Premature withdrawal from FDs may incur penalties, limiting liquidity.

Taxation: Interest income from FDs is taxable, reducing overall returns, especially for investors in higher tax brackets.

Conclusion
Considering your financial needs and risk tolerance, both SWP and Fixed Deposits have their place in a well-diversified portfolio.

SWP is suitable if you seek regular income with the potential for growth and can tolerate market fluctuations.

Fixed Deposits provide stability and capital preservation, ideal for conservative investors prioritizing safety over higher returns.

Ultimately, the decision depends on your specific circumstances and investment objectives. Consulting with a Certified Financial Planner can provide personalized guidance aligned with your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |7012 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 23, 2024

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Hi...i have 25lakhs and want to invest for gurenteed monthly income after 5years ....which is better swp or fd ladder... expecting 30000 per month for 15 years ...less risky
Ans: You want a guaranteed monthly income of Rs. 30,000 after five years. With Rs. 25 lakhs to invest, you need a less risky, reliable solution. Your goal is to secure income for 15 years. Balancing safety and returns is crucial.

Evaluating Fixed Deposit Laddering
A Fixed Deposit (FD) ladder involves splitting your investment into multiple FDs with varying maturities. This method offers some advantages:

Safety:
FDs are low-risk and insured by banks.

Predictable Returns:
FD interest rates are fixed. You know what you’ll earn.

However, FDs have limitations:

Lower Returns:
FD rates may not beat inflation. Your purchasing power could decrease.

No Flexibility:
Breaking an FD early leads to penalties. You also lose some interest.

Given these factors, FDs might not meet your income needs. Inflation can erode your returns over 15 years.

Understanding Systematic Withdrawal Plans (SWP)
A Systematic Withdrawal Plan (SWP) in Mutual Funds offers a steady income stream. It allows you to withdraw a fixed amount monthly while your corpus remains invested. This option provides several benefits:

Higher Returns:
SWPs in equity or balanced funds can offer higher returns than FDs.

Tax Efficiency:
Only the gains are taxed, reducing your tax burden.

Flexibility:
You can adjust withdrawal amounts as needed.

Let’s compare the two options:

Returns Potential:
SWPs have higher return potential. Equity exposure over five years can yield better results.

Taxation:
SWPs are more tax-efficient. FDs are taxed as per your income slab.

Flexibility:
SWPs offer more flexibility than FDs. You can increase or decrease withdrawals.

Choosing the Right Strategy
Given your requirement for a less risky investment with steady income, here’s why an SWP is preferable:

Growth with Safety:
Opt for a balanced or conservative hybrid fund. These funds have a mix of equity and debt, providing growth with lower risk.

Steady Income:
An SWP allows you to set up a monthly withdrawal plan. Your corpus continues to grow, offering better returns than FDs.

Beating Inflation:
Over 15 years, inflation can erode FD returns. An SWP, with its equity exposure, is better suited to protect your purchasing power.

How to Implement an SWP
To achieve your goal of Rs. 30,000 per month:

Invest Rs. 25 lakhs in a balanced or conservative hybrid fund.
These funds balance risk by investing in both equity and debt.

Start the SWP after five years.
Your corpus will grow during these years. The returns will help sustain the monthly withdrawals.

Adjust withdrawals based on market conditions.
Flexibility is key with SWPs. Increase or decrease the amount based on your needs and market performance.

Final Insights
Investing Rs. 25 lakhs in an SWP through a balanced or hybrid fund is a sound strategy for generating a stable monthly income of Rs. 30,000 after five years. This method is more tax-efficient, flexible, and offers better inflation protection than an FD ladder.

An FD ladder, while safe, might not offer the growth needed to sustain your income for 15 years. Inflation and taxes could further reduce your real returns.

A well-planned SWP, aligned with a balanced fund, provides a balanced approach, offering both security and growth. Work with a Certified Financial Planner to ensure the selected funds meet your risk profile and financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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hello, I'm a 49F married for 21years. It was an arranged match, and from day one my husband and sister have not gotten along. I've also been naive and under my sister's control for a long time, which has angered my husband a lot. In March they both had a verbal altercation and have not been on talking terms. Now my husband is not letting my 18y son meet my sister. My husband is demanding a sorry from my sister, post which only my son can meet her. I'm really sad as my sister dearly loves my son, also I don't feel its morally right to involve children in family politics. And my sister will not apologize to my husband. Need help to understand on how to get my innocent son out of this mess. My husband is very controlling, very angry, very interfering person, overall he has a very negative perspective on everything.
Ans: It might help to approach this from a place of calm and clarity, starting by recognizing that both your husband and your sister likely feel hurt in their own ways. Your husband’s demand for an apology may come from years of built-up tension and perhaps a feeling that he hasn’t been supported in the past. On the other hand, your sister may feel hurt or defensive, making her unwilling to apologize. While it would be ideal for them to resolve this between themselves, you’ve noticed that it’s now affecting your son, and you understandably want to protect him from being caught in the middle.

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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