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Can a 40-Year-Old Turn a 65-Lakh Investment into a 1 Lakh Monthly Income?

Ramalingam

Ramalingam Kalirajan  |7209 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 05, 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
Harish Question by Harish on Oct 05, 2024Hindi
Money

Hi Sir, I am 40 year old and back in 2019 I opted for SBI privilege where I invested 6 lacs a year for 6 years that is 30 lacs in total. And now its valued 65 lacs as of today. I am curious to know how can I try and get a monthly income around 1 lac using this money? are there any paths for swap OR change to make my desire come true? Please could you suggest? Thank you!

Ans: You’ve done well to accumulate Rs 65 lakhs in your investment. The SBI privilege policy has given you a fair growth on your initial capital of Rs 30 lakhs. But now, you’re looking for a more reliable income stream. Generating Rs 1 lakh per month as income from this corpus is indeed achievable, but the current product may not be the best fit for this goal.

Limitations of Your Current Investment
The SBI privilege scheme, while it may have given decent returns, isn't designed to offer monthly income.

Traditional insurance products like this one usually focus on providing life cover and maturity benefits, not cash flow.

The growth here is likely due to compounded returns, but switching to a different approach might align better with your income goals.

Reinvesting for Monthly Income
To generate regular income, it might be better to withdraw your Rs 65 lakhs from the current policy and reinvest it in mutual funds. Mutual funds can offer systematic withdrawal plans (SWP), which allow you to withdraw a fixed amount every month.

SWP is a structured withdrawal option. You can choose the amount and frequency of withdrawals.

You could aim to withdraw Rs 1 lakh monthly. Your principal remains invested while you receive regular payments.

This method provides flexibility, allowing you to adjust withdrawals based on market performance or personal needs.

Benefits of Actively Managed Mutual Funds
While you're considering reinvestment, it's important to choose the right type of mutual funds.

Actively managed funds are preferable because fund managers adjust portfolios according to market conditions, offering potential for higher returns.

Actively managed funds may outperform in volatile markets, which is a significant advantage for those looking to generate regular income.

Why Avoid Direct Mutual Funds?
Although direct funds seem attractive due to lower expense ratios, they come with their own set of challenges:

Managing direct funds yourself requires time, effort, and understanding of market trends.

Without professional guidance, it's easy to miss critical decisions on fund switching or rebalancing.

Instead, investing through a Certified Financial Planner (CFP) ensures that your portfolio is regularly monitored and adjusted to meet your financial goals.

The Advantages of Working with a CFP
By working with a CFP, you'll get access to expert advice on fund selection, timing of withdrawals, and tax planning.

A CFP will help you navigate the complexities of SWP, ensuring the longevity of your investment.

You will also receive recommendations on how to adjust your withdrawals or reinvestment strategy based on changing market conditions.

Mutual Fund Capital Gains Taxation
Understanding how withdrawals from mutual funds are taxed is critical:

Equity Mutual Funds: Long-term capital gains (LTCG) over Rs 1.25 lakhs are taxed at 12.5%. Short-term gains are taxed at 20%.

Debt Mutual Funds: Both LTCG and STCG are taxed according to your income tax slab.

With SWP, the tax liability will depend on how long your funds have been invested, but a CFP can guide you on how to minimize taxes.

Diversifying Your Investments
To ensure stable monthly income, it's wise to diversify within mutual funds. Different categories of funds offer different risk-reward combinations:

Balanced or Hybrid Funds: These invest in both equity and debt, reducing risk while providing stable returns.

Equity Funds: These offer potential for high returns but come with higher risk. Ideal for long-term growth, but not recommended for short-term income generation.

Debt Funds: These offer stability, but returns are generally lower. Suitable for short-term income needs.

How to Structure Your SWP
You could consider withdrawing Rs 1 lakh per month, but this withdrawal amount must be structured carefully to ensure that the corpus lasts over time:

If your fund grows by 10-12% annually, a 6-8% annual withdrawal rate (Rs 1 lakh per month) could work, ensuring your corpus lasts longer.

You may need to periodically review and adjust the withdrawal rate based on market conditions.

Planning for Future Needs
It's important to consider future expenses as well. The Rs 65 lakhs, while sufficient for now, might need to grow to accommodate inflation or unexpected costs.

Reinvesting in mutual funds ensures that the remaining corpus continues to grow, providing a buffer for future financial needs.

Periodic reviews of your investment and withdrawal strategy with your CFP will keep your plan on track.

Best Practices for Long-Term Income
Keep your withdrawal rate sustainable. Drawing too much too soon might deplete your corpus quickly.

Reinvest in growth-oriented funds for better long-term returns while withdrawing only what’s needed.

Keep some funds in low-risk debt funds for emergencies or market downturns.

Final Insights
Switching your Rs 65 lakhs into a mutual fund portfolio with SWP could provide the Rs 1 lakh monthly income you desire. It's a flexible and tax-efficient option, and with the right actively managed funds, you can balance growth and stability. Work closely with your CFP to review and adjust your strategy over time, ensuring that your investments meet your evolving financial needs.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
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  |7209 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 13, 2024

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this is md nadeem, 40 year age, just now one month back started SIP in Mutual fund (SBI Blue chip & SBI index fund), I want to make monthly income rs 25,000 Per month after 5 year and another plan is, make a crore, I will be greatful if you tell me about, i dont have any loans but having 5 to 6 lakhs saving, business is not monthly basis it depend on season or oppornity.
Ans: Md Nadeem, you’ve set clear goals for your financial future. You want to achieve a monthly income of Rs 25,000 after 5 years and build a corpus of Rs 1 crore. Let’s assess how your current strategy aligns with these goals and what adjustments might be needed.

Current Investment in Mutual Funds
You’ve started a SIP in a blue-chip fund and an index fund. Blue-chip funds invest in well-established companies with a strong track record. These funds offer stability and moderate returns. They are suitable for conservative investors looking for steady growth.

However, index funds have limitations. They mirror market indices and do not offer the flexibility of actively managed funds. Index funds do not aim to outperform the market, and during market downturns, they might not protect your investments as effectively as actively managed funds. You might want to reconsider your investment in index funds and focus on actively managed funds. These funds have the potential to deliver better returns, especially in volatile markets.

Achieving a Monthly Income of Rs 25,000
To generate a monthly income of Rs 25,000 after 5 years, your investment approach needs to be carefully planned. While SIPs in mutual funds are a good starting point, the choice of funds is crucial. Actively managed funds, particularly those focused on generating regular income, might be more appropriate for your goal.

You should also consider the following:

Diversification: Investing in a mix of equity and debt funds can balance growth and income. Equity funds offer growth potential, while debt funds provide stability and income.

Systematic Withdrawal Plan (SWP): After 5 years, you can opt for an SWP from your mutual fund investments. This allows you to withdraw a fixed amount regularly while keeping the rest of your investment growing.

Risk Management: Since your income is seasonal, it’s essential to manage risk. Ensure your portfolio is diversified across different asset classes to reduce the impact of market fluctuations.

Building a Corpus of Rs 1 Crore
To accumulate Rs 1 crore, your current savings and SIPs need to be supplemented with a more aggressive investment strategy. Here’s how you can approach it:

Increase SIP Contributions: If possible, gradually increase your SIP amount. Regularly increasing your SIP can significantly boost your corpus over time.

Focus on Growth-Oriented Funds: Consider investing in mid-cap or small-cap funds, which have higher growth potential. However, be mindful of the risk associated with these funds.

Lumpsum Investments: You have Rs 5-6 lakhs in savings. You can invest this amount in a staggered manner in growth-oriented funds. This approach can enhance your overall returns without exposing you to significant market risk at once.

Regular Review and Rebalancing: Periodically review your portfolio with a Certified Financial Planner. This will help you stay on track with your goals and make necessary adjustments.

Managing Seasonal Business Income
Given that your business income is seasonal, it’s important to plan your investments and savings carefully:

Emergency Fund: Ensure that you have a robust emergency fund. This fund should cover at least 6-12 months of expenses. It will provide a cushion during lean business periods.

Flexible SIP Options: Choose mutual fund SIPs with the option to pause or modify contributions. This flexibility can be useful when your business income fluctuates.

Diversified Income Streams: Consider diversifying your income sources. Investments in dividend-paying funds or other income-generating assets can provide additional income during off-seasons.

Final Insights
Md Nadeem, you are on the right path by starting your investments in mutual funds. However, to achieve your financial goals, consider focusing on actively managed funds over index funds. Actively managed funds offer better growth potential and flexibility, which are crucial for your objectives.

Increase your SIP contributions if possible and consider investing your savings in a staggered manner to enhance returns. Keep an emergency fund and ensure that your investments are diversified to manage risks effectively.

Regularly review your portfolio with a Certified Financial Planner to stay aligned with your goals. With careful planning and disciplined investing, you can achieve your desired monthly income and build a substantial corpus over time.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Dear Doctor, I work as a corporate lawyer in Delhi. I’ve been considering undergoing a cosmetic procedure for my skin for some time now, but I’m feeling a bit overwhelmed by the number of surgeons available. I want to ensure that I choose someone who is experienced, as this is a big decision for me. Could you advise what I should look for when selecting a plastic-aesthetic surgeon? Are there any specific red flags I should be aware of when researching potential surgeons? I want to make sure I’m in safe hands. I’m 40 years old.
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1. Research well, but dont fall prey to only advertisement. Small and big centers, both advertise,
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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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