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Ramalingam

Ramalingam Kalirajan  |8182 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  |8182 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

..Read more

Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 06, 2025

Asked by Anonymous - Feb 06, 2025Hindi
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My age is 40 and I have 40 lakh invest in mutual funds and planning to do swp to get monthly 20 thousand. Please help me is it correct approa
Ans: You have Rs. 40 lakh in mutual funds.

You plan to withdraw Rs. 20,000 monthly.

A systematic withdrawal plan (SWP) can provide steady income.

It should not deplete your corpus too soon.

A balanced strategy is essential.

Checking the Sustainability of SWP
The withdrawal rate should match returns.

High withdrawals can erode capital.

Market performance affects fund growth.

A mix of equity and debt is needed.

Debt funds provide stability.

Equity ensures long-term growth.

Asset Allocation for Stability
Avoid relying only on equity.

Allocate funds for long-term security.

Debt funds can handle short-term needs.

Equity funds grow wealth over time.

A mix of both balances risk and return.

Tax Implications of SWP
SWP in equity funds is tax-efficient.

Long-term capital gains are taxed at 10%.

Short-term gains are taxed at 15%.

Debt fund withdrawals attract slab tax.

Tax planning can reduce liability.

Adjusting SWP for Longevity
Increase withdrawals gradually.

Monitor portfolio performance.

Adjust allocation based on market cycles.

Avoid withdrawing more than growth.

Review plan every year.

Final Insights
SWP can work if planned well.

A balanced allocation is necessary.

Tax-efficient withdrawals save money.

Regular reviews keep the plan effective.

Aim for capital preservation with growth.

Your income should last for decades.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 03, 2025

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Dear Sir, I am 47 years old IT professional. My current salary is 1.5 lakhs per month. I have a daughter who just completed her 10th board exam. My corpus is around 1.6Cr FD&PPF; 30 lakhs in MF & stocks; 50 lakhs in EPF. I have no debt and living in my own house. Please suggest if I can plan for retirement
Ans: Your financial position is strong, and planning for retirement at 47 is a smart decision. Below is a detailed 360-degree approach to assess whether you can retire comfortably and how to ensure financial security.

Understanding Your Current Financial Position
Income: Rs 1.5 lakh per month.

Corpus:

Rs 1.6 crore in Fixed Deposits (FD) and Public Provident Fund (PPF).

Rs 30 lakh in mutual funds and stocks.

Rs 50 lakh in Employees' Provident Fund (EPF).

Liabilities: No debts.

Assets: Own house, ensuring no rent or EMI burden.

Family Responsibility:

Daughter has just completed the 10th board exam.

Higher education expenses need to be planned.

Key Considerations Before Retirement
Expected Retirement Age

If you plan to retire early (before 55), corpus sustainability needs careful assessment.

If you work till 60, it will provide a larger financial cushion.

Post-Retirement Expenses

Living expenses, healthcare, travel, and lifestyle costs must be considered.

Inflation will increase future expenses.

Daughter’s Education

Higher education costs are significant.

Corpus should cover both education and retirement without compromise.

Medical Expenses

Health costs increase with age.

A high health insurance cover is essential.

Wealth Growth vs. Safety

A mix of equity and debt investments ensures growth while preserving capital.

Excessive reliance on FDs and PPF may limit long-term wealth accumulation.

Assessing If You Can Retire Comfortably
Current Corpus Size

Rs 2.4 crore (excluding house) is a strong starting point.

But, inflation will reduce its real value over time.

Expected Corpus Growth

Investments in mutual funds and stocks should continue to grow.

PPF and EPF offer stable but lower returns.

Withdrawals Post-Retirement

Sustainable withdrawals should not deplete the corpus too soon.

A balanced investment strategy is required.

Gaps in Planning

Heavy reliance on FDs and PPF may not be ideal.

More equity exposure can ensure inflation-beating returns.

Steps to Strengthen Your Retirement Plan
1. Optimising Investment Strategy
Continue investing in mutual funds with a mix of large-cap, mid-cap, and flexi-cap funds.

Reduce dependence on FDs for long-term needs.

Equity mutual funds help counter inflation and grow wealth.

Avoid index funds as they provide average returns without active management.

Regular funds through a Certified Financial Planner (CFP) offer expert monitoring.

Diversify investments between equity, debt, and fixed-income products.

2. Planning for Daughter’s Education
Higher education costs can be Rs 30-50 lakh in the next 5-7 years.

Separate this goal from your retirement plan.

Increase equity investment to build an education corpus.

Avoid withdrawing from retirement savings for education.

3. Building a Healthcare Safety Net
Health insurance should cover at least Rs 30-50 lakh.

Consider super top-up plans for additional coverage.

Maintain an emergency medical fund to cover non-insured expenses.

Review insurance policies periodically.

4. Creating a Sustainable Withdrawal Plan
Avoid withdrawing a large portion of the corpus in early retirement years.

Keep at least 5 years of expenses in liquid assets.

Equity exposure should reduce gradually as retirement progresses.

Use dividends and interest income before selling assets.

Final Insights
Retirement is possible, but adjustments are needed for long-term security.

Continue investing aggressively for the next few years.

Ensure daughter's education is planned separately.

Review investments and insurance regularly.

Keep flexibility in withdrawal strategy post-retirement.

A structured plan will ensure a financially secure and comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 03, 2025

Asked by Anonymous - Apr 03, 2025Hindi
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My employer offers a salary sacrifice scheme for pension contributions, but I don't fully understand how it works. What are the potential advantages and disadvantages of joining such a scheme, and how does it affect my take-home pay and long-term financial planning?
Ans: A salary sacrifice scheme for pension contributions allows you to give up a portion of your salary in exchange for increased employer contributions to your pension. It has tax and National Insurance (NI) advantages but also some potential drawbacks.

How Salary Sacrifice for Pension Works
You agree to reduce your gross salary by a chosen amount.

Your employer contributes this amount directly to your pension.

Since your taxable salary is lower, you pay less income tax and NI.

Your employer also saves on NI and may pass on some or all of this saving to your pension.

Advantages
1. Tax and NI Savings
You don’t pay income tax or NI on the sacrificed amount.

Your employer saves on NI (currently 13.8%) and may increase your pension with these savings.

2. Higher Pension Contributions
Since more money goes into your pension, your retirement corpus grows faster.

Compounding over time enhances long-term wealth.

3. Increased Take-Home Pay
Although you sacrifice part of your salary, the NI savings may offset some of the reduction.

Depending on employer policies, your net pay may not drop significantly.

4. Potential Employer Matching
Some employers pass their NI savings into your pension, increasing your total contributions.

Disadvantages
1. Reduced Gross Salary
A lower salary means reduced future pay rises if they are percentage-based.

Life cover, sick pay, and redundancy pay linked to salary may be affected.

2. Lower Borrowing Capacity
Mortgage applications consider salary; a lower reported income might reduce borrowing potential.

3. Impact on State Benefits
If salary drops below certain thresholds, statutory benefits like maternity pay and state pension could be affected.

4. Restricted Access to Pension
The extra pension savings cannot be accessed before retirement (except under specific conditions).

Effect on Take-Home Pay
Your net pay will be slightly lower, but less than the actual amount sacrificed.

The tax and NI savings cushion the impact.

If your employer adds their NI savings, your total retirement savings increase.

Effect on Long-Term Financial Planning
Your pension fund grows faster, improving retirement security.

Short-term disposable income is slightly reduced, so budget planning is important.

Consider how the reduced salary affects other financial goals like buying a house or saving for education.

Should You Opt for It?
If employer NI savings are passed to your pension, it’s highly beneficial.

If you are close to lower tax bands or state benefit thresholds, assess the impact.

If you plan to apply for a mortgage, check how it affects your eligibility.

A Certified Financial Planner (CFP) can help assess your personal situation before making a decision.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 03, 2025

Asked by Anonymous - Apr 03, 2025Hindi
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Hi Sir , Greetings of the day!! hope you are doing well !! I want to do a savings of 50 lacs in as much less time span as possible because I want to buy a property in Gurgaon. My monthly salary is 1 lac 11k and I am currently investing 10k in mutual fund monthly and 50k in nps yearly. Can you please guide me how can I save 50 lacs and in how much time ?
Ans: Your goal of saving Rs 50 lakh for a property in Gurgaon is ambitious but achievable with the right strategy. Below is a structured approach to help you reach your target in the shortest possible time.

Understanding Your Current Financial Position
Your monthly salary is Rs 1.11 lakh.

You invest Rs 10,000 per month in mutual funds.

Your annual NPS contribution is Rs 50,000.

You haven't mentioned any liabilities or existing savings. If you have any ongoing EMIs or debts, they should be factored in.

Key Considerations for Achieving Rs 50 Lakh Target
The speed of reaching Rs 50 lakh depends on savings rate and returns.

High savings rate is the most reliable way to accumulate wealth.

Investment returns are uncertain and depend on market conditions.

A balanced approach is necessary to ensure stability and growth.

Increasing Your Savings Rate
Currently, you are investing Rs 10,000 per month.

If you can increase it to Rs 50,000 per month, you will reach Rs 50 lakh faster.

Cutting discretionary expenses will free up more money for investments.

Consider reducing unnecessary spending on dining out, luxury items, and vacations.

Redirect bonuses, incentives, or salary hikes towards savings.

Choosing the Right Investment Instruments
Mutual Funds for Growth
Actively managed equity mutual funds can generate better returns than fixed deposits.

A mix of large-cap, mid-cap, and small-cap funds can balance risk and reward.

Mid-cap and small-cap funds have higher growth potential but also higher volatility.

Avoid index funds as they provide average returns and lack active risk management.

Debt Investments for Stability
Fixed deposits, debt mutual funds, and PPF provide stability.

These should be used for short-term parking rather than long-term growth.

Debt mutual funds are taxed based on your income tax slab.

Avoid locking too much money in low-return instruments.

Balancing Risk and Return
Investing entirely in equity mutual funds can generate high returns but comes with volatility.

A mix of 80% equity and 20% debt can provide stability.

As your target nears, shift more funds towards safer instruments.

Avoid speculation and high-risk investments like cryptocurrency.

Role of NPS in Your Goal
NPS is good for retirement but not ideal for short-term goals.

Partial withdrawal is allowed only under specific conditions.

Do not rely on NPS for your property purchase.

Managing Tax Efficiency
Equity mutual fund LTCG above Rs 1.25 lakh is taxed at 12.5%.

Short-term capital gains (STCG) are taxed at 20%.

Debt mutual fund gains are taxed as per your income slab.

Investing in tax-efficient instruments will maximize returns.

Estimating the Timeframe
If you invest Rs 50,000 per month, you can accumulate Rs 50 lakh in about 7-8 years with moderate returns.

If you invest Rs 75,000 per month, you can reach Rs 50 lakh in about 5 years.

The faster you increase your savings, the sooner you will achieve your goal.

Final Insights
Increase your monthly investment to at least Rs 50,000.

Focus on actively managed equity mutual funds.

Keep a small portion in debt for stability.

Avoid unnecessary expenses and invest salary increments.

Do not depend on NPS for this goal.

Monitor and adjust your portfolio as needed.

Stay disciplined and patient to achieve your target.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

Dr Dipankar

Dr Dipankar Dutta  |1090 Answers  |Ask -

Tech Careers and Skill Development Expert - Answered on Apr 03, 2025

Dr Dipankar

Dr Dipankar Dutta  |1090 Answers  |Ask -

Tech Careers and Skill Development Expert - Answered on Apr 03, 2025

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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