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Confused about investing PF in mutual funds: Can it last for 25 years?

Ramalingam

Ramalingam Kalirajan  |7097 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 27, 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 - Aug 22, 2024Hindi
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Dear Sir, I am 58 years and recently retired from my employment. My PF amounts to Rs 1 Cr and i want to invest in Mutual Funds instead of keeping the money in the EPF account. Sir, i will need Rs 45,000 monthly for my monthly expsnses and thanks to your education, got to know about SWP. Sir, please advice how do i go about investing in terms of selecting funds and what amount in these funds. Will the corpus last me for 25 yrs at the monthly withdrawal rate of Rs 45,000. If it can last for 25 yrs, what will be my corpus at the end of 25 yrs. Thank you and anxiously look forward to your reply Best Regards & God bless

Ans: It’s great that you’ve accumulated Rs. 1 crore in your PF account. You’re thinking of moving this to mutual funds, and that’s a wise choice considering your long-term goals. Your monthly need is Rs. 45,000, and you’ve rightly pointed out the use of a Systematic Withdrawal Plan (SWP) to meet these expenses.

Investment Objective
Your primary goal is to generate Rs. 45,000 per month for your expenses while ensuring your corpus lasts for 25 years. You’re also interested in knowing whether there will be any remaining corpus at the end of this period.

SWP Strategy Overview
An SWP allows you to withdraw a fixed amount monthly while the rest of your investment continues to grow. The key is to select funds that provide a balance between growth and stability.

Selecting Mutual Funds
Equity Funds:

These funds provide higher returns, helping your corpus grow over time. However, they come with market risks. For long-term growth, equity funds in large-cap and multi-cap categories are preferable.
Hybrid Funds:

Hybrid funds offer a mix of equity and debt. They provide a balanced approach by offering moderate growth with lower risk compared to pure equity funds.
Debt Funds:

Debt funds are more stable but offer lower returns. They can act as a cushion, providing stability to your overall portfolio.
Asset Allocation
Given your goal and time horizon, a balanced approach is essential. You may consider the following allocation:

50% in Equity Funds:

This portion will help your corpus grow, keeping pace with inflation.
30% in Hybrid Funds:

Hybrid funds add stability and moderate growth, reducing volatility.
20% in Debt Funds:

Debt funds ensure a safety net, providing consistent returns without much risk.
Implementing the SWP
Start with Debt Funds:

Begin your SWP withdrawals from the debt portion. This ensures you’re not selling equity when the market is down.
Rebalance Annually:

Every year, review your portfolio. Rebalance it to maintain your desired asset allocation. This ensures that your funds are neither too risky nor too conservative.
Ensuring the Corpus Lasts for 25 Years
Return Expectations:

Assuming an average annual return of 8-10% from the portfolio, this approach should provide you with a stable monthly income.
Corpus Depletion:

Your corpus is likely to last for 25 years with this strategy. However, it’s important to monitor and adjust withdrawals according to the portfolio’s performance.
Estimating the Corpus at the End of 25 Years
Growth Potential:
While you’ll be withdrawing Rs. 45,000 per month, the remaining amount continues to grow. After 25 years, there may still be a significant corpus left, depending on the performance of the equity and hybrid funds.
Risk Management
Inflation Consideration:

Inflation will reduce the purchasing power of your Rs. 45,000 over time. It’s essential to review and adjust your SWP periodically to account for inflation.
Health Insurance:

Ensure you have adequate health insurance to cover medical emergencies. This prevents you from dipping into your corpus.
Emergency Fund:

Maintain an emergency fund outside of your investments. This covers unexpected expenses and reduces the need to withdraw from your mutual funds at an inopportune time.
Tax Efficiency
Taxation on SWP:
SWP from mutual funds is subject to capital gains tax. Equity funds are taxed at 12.5% for long-term gains over Rs. 1.25 lakh. Debt funds are taxed at the slab rate only for the gain to the extent withdrawn. Plan your withdrawals keeping tax implications in mind to maximize your net returns.
Finally
Investing your Rs. 1 crore PF corpus in a well-balanced mutual fund portfolio is a sound decision. By carefully selecting funds and implementing a disciplined SWP strategy, you can ensure that your corpus lasts for 25 years, providing you with a steady monthly income. Regular monitoring and adjustments will help you stay on track, and with careful planning, you may even have a significant corpus left at the end of 25 years.

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  |7097 Answers  |Ask -

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Hello Myself Sunil Mishara age 60 yeras.I want to invest 40 lakh in mutual fund for long term 5 to 10 years under SWP.As I have retired person investment Plan should be moderate to low risk.I have already invested amount Rs 30 lakh in FD in senior citizen schems.
Ans: Hello Sunil, it's wonderful to hear about your investment plans as you transition into retirement. Your cautious approach to seeking moderate to low-risk options is prudent, especially considering your stage of life.

Investing 40 lakh in mutual funds for long-term growth through Systematic Withdrawal Plans (SWP) is a wise strategy. SWP allows you to receive regular payouts while keeping your principal invested, potentially earning returns over time.

Given your risk tolerance, consider allocating your investment across a mix of balanced funds and debt funds. Balanced funds offer a blend of equity and debt, providing stability with potential for growth. Debt funds, on the other hand, focus primarily on fixed-income securities, offering lower risk but steady returns.

As you've already invested a portion in senior citizen schemes, your mutual fund investment can complement this by providing additional growth potential. Regularly review your portfolio's performance and adjust allocations if needed to ensure it continues to align with your risk tolerance and financial goals.

Remember, while seeking growth, it's crucial to prioritize capital preservation at this stage of life. By diversifying your investments and opting for moderate to low-risk options, you can aim for steady income while safeguarding your financial well-being in retirement.

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Asked by Anonymous - Sep 18, 2024Hindi
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Dear Sir, I am 58 years and recently retired from my employment. My PF amounts to Rs 1 Cr and i want to invest in Mutual Funds instead of keeping the money in the EPF account. Sir, i will need Rs 45,000 monthly for my monthly expsnses and thanks to your education, got to know about SWP. Sir, please advice how do i go about investing in terms of selecting funds and what amount in these funds. Will the corpus last me for 25 yrs at the monthly withdrawal rate of Rs 45,000. If it can last for 25 yrs, what will be my corpus at the end of 25 yrs. Thank you and anxiously look forward to your reply Best Regards & God bless
Ans: Hello;

It would be advisable to invest your corpus lumpsum in hybrid conservative (debt oriented) fund type.

I recommend Kotak hybrid debt fund or SBI conservative hybrid fund both from the same category as mentioned above, suggested based on 5 year returns.

I recommend that you let the corpus compound for 2 years minimum.

Your corpus may grow to 1.17 Cr after 2 years assuming modest return of 8%.

Here if you do a 5% SWP then you may expect a monthly payout of 48750 per month for next 25 years.

At the end of 25 years you can expect a net corpus value of around 3.58 Cr(modest return of 8% considered) after deducting monthly payouts.

Other option for you could be to buy immediate annuity from an insurance company. Considering annuity rate of 6% you may expect to receive monthly payment of 50K from the next month onwards. It has various features for joint holding and return of purchase price after the end of annuity period(25 years for eg) or expiry of the annuity holder, to the nominee.

Do your due diligence and choose the best option suiting to your requirement.

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing

Happy Investing!!

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Radheshyam

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MHT-CET, IIT-JEE, NEET-UG Expert - Answered on Nov 21, 2024

Asked by Anonymous - Nov 21, 2024Hindi
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Hello, I am 3 yr neet dropper.in 2025 it will be my third attempt... I'm trying my best to crack neet ...i don't know what will happen will i score good marks or not ... please help me in suggesting good career options if not crack neet .....there are many options through neet marks also like bhms , veterinary...etc. i will also give entrance exam also like cuet ,gbpuat ,....but i want that what to choose which course will be best for me ...i want to make my life good and happy... having a good degree, good job ,...
Ans: Hello.
Have you analyzed your failure in 2 successive attempts in the NEET examination? If yes, then the question is what you have done for improvement and not then again the question arises why not? Here, I would like to suggest you focus now only on the NEET examination which is your 3rd attempt. Don't think about any other options right now till May 2025. After the NEET exam is over, you have ample time to explore the options available. Depending on your score in NEET 2025, we will guide you at that time. But yet, if you are confused, then looking towards your question and anxiety, you need personal counseling where you can express yourself face-to-face. Only after the NEET exam is over, you contact a counsellor for one-to-one counseling. Till then, keep mum and focus only on NEET. Take this exam as your mission and project. Work on this project, apply forces from all sides, success is there which is waiting for you eagerly.
Best of luck for your bright future.

Some tips: (1) Analyse separately Phy, Che, Bio (2) Prepare a list of hard topics (3) First focus more on the topics which are easy for you and then try to excel in hard topics (4) Appear more and more online/offline examinations (4) Prepare your short-cut file for all subjects (5) Prepare a file for each subject having only synopsis of all chapters (6) Try to solve the problems at the lightening speed and observe the period on regular basis (7) Create your time table to revise the topics on regular basis (8) Do not hesitate to ask your difficulties to your teachers, if you have joined to offline classes (9) Keep the habit of marking the answers which you know 100%. Don't guess the answers and mark them, as there is -ve marking scheme. (10) Be calm, quite, and smiling all the time to release the tension and always have a healthy chat with your friends.

If satisfied, please like and follow me.
If dissatisfied with the reply, please ask again without hesitation.
Thanks.

Radheshyam

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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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