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58 Year Old with Rs. 1 Cr PF: How to Invest in Mutual Funds for Monthly Expenses?

Milind

Milind Vadjikar  |568 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Sep 22, 2024

Milind Vadjikar is an independent MF distributor registered with Association of Mutual Funds in India (AMFI) and a retirement financial planning advisor registered with Pension Fund Regulatory and Development Authority (PFRDA).
He has a mechanical engineering degree from Government Engineering College, Sambhajinagar, and an MBA in international business from the Symbiosis Institute of Business Management, Pune.
With over 16 years of experience in stock investments, and over six year experience in investment guidance and support, he believes that balanced asset allocation and goal-focused disciplined investing is the key to achieving investor goals.... more
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!!
Asked on - Sep 23, 2024 | Answered on Sep 23, 2024
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Thank you for the revert, Mr Milind. Appreciate your advice
Ans: You are most welcome!!
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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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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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

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Hi Sir, I am tensed as JEE Main Examination is approaching and i am scared that i would only be able to score 100/300 at best. Please suggest me some good regional colleges. I am female single girl child in Delhi. Engineering was never my first priority yet I chose it because it seemed a safe option. I would also try and give CUET. One more concern is that my 5th subject in class 12 is GST or Geospatial Technology. Is there any scope for this subject through which I can enter a decent college. I dont want to spend my parents money..Please help. I am distressed
Ans: Hello Shaamhavi
First I would like to say that without any fear in mind and a predetermined score, you appear for JEE 2025 in 1st session. To improve your score/performance, you have 2nd attempt also.
You said, engineering was never your 1st priority. Then, why not have discussed this fact with your parents or parents have forced you to go for engineering? It is not clear from your question. How you can say, it is a safe option is also not clear.
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My age is 40 years. I want to invest in share market @ mutual funds. Is there any otherways to invest. Please suggest me.
Ans: at age 40, you have a valuable opportunity to build wealth with a diversified investment plan. With careful selection, there are various investment avenues beyond stocks and mutual funds to help you reach your financial goals. Let’s explore these options with a 360-degree approach.

Benefits of Diversified Investments
Risk Reduction: Diversification spreads risk across asset classes, providing a balanced growth potential.
Growth and Stability: Different investments perform differently under various market conditions, balancing returns over time.
Meeting Multiple Goals: A mix of investment options can cater to various life goals like retirement, children’s education, and asset creation.
Actively Managed Mutual Funds for Balanced Growth
If you’re interested in mutual funds, actively managed funds offer several advantages over index funds:

Expert Management: Professional fund managers actively monitor and adjust investments, aiming for higher returns than the general market.
Adaptability: Active funds can shift investments based on market trends, maximising growth and minimising risks.
Avoiding Index Funds Limitations: Index funds merely mirror market performance, with limited growth potential. Actively managed funds, on the other hand, target opportunities for higher returns.
Investing with an MFD and CFP: Investing through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) brings personalised advice. Regular funds through an MFD and CFP ensure guidance in fund selection, performance reviews, and tax planning, all contributing to more effective wealth-building.
Bonds for Stable Income
Bonds provide stability, making them a reliable option in your portfolio:

Government and Corporate Bonds: These offer fixed interest rates, making them ideal for low-risk, predictable returns.
Diversified Bond Funds: Bond funds allow exposure to multiple bond types, balancing risk while delivering stable income.
Tax Treatment: Interest on bonds is taxed based on your income tax slab. However, long-term capital gains on debt-oriented mutual funds are also taxed per your income slab.
National Pension System (NPS) for Retirement Security
The National Pension System (NPS) is a useful tool for retirement savings, with tax benefits:

Equity and Debt Mix: NPS offers both equity and debt investments, customisable based on your risk appetite and age.
Tax Benefits: NPS provides tax deductions under Section 80C and 80CCD, helping save on taxes while investing for retirement.
Retirement Income: NPS allows you to withdraw up to 60% at retirement, while the rest is converted to a pension, providing a steady income post-retirement.
Public Provident Fund (PPF) for Tax-Free Savings
PPF offers a stable, tax-free return, suitable for low-risk, long-term growth:

Government-Backed Safety: PPF provides assured returns, with interest rates set by the government, and no market risk.
Tax Exemption: PPF falls under the EEE (Exempt-Exempt-Exempt) category, meaning investment, returns, and maturity are all tax-free, making it a tax-efficient choice.
15-Year Lock-In: While PPF has a long lock-in period, partial withdrawals are allowed after a few years, giving flexibility in case of urgent financial needs.
Fixed Deposits (FDs) as Safe Reserves
Fixed Deposits (FDs) provide low-risk, guaranteed returns and are easy to manage:

Certainty of Returns: FDs offer fixed interest, with no risk of capital loss, suitable as a safe reserve in a portfolio.
Flexible Tenure: You can choose FDs with a tenure ranging from 1 to 10 years, based on your need for liquidity.
Tax on Interest: Interest earned on FDs is taxable as per your income slab, but they can still be useful for parking funds needed in the short term.
Systematic Investment Plan (SIP) in Equity Mutual Funds
A monthly SIP helps build wealth through regular investment in equity mutual funds:

Disciplined Approach: SIPs encourage consistent investing, ideal for long-term goals like retirement or children’s education.
Cost Averaging: SIPs spread the investment across market cycles, reducing the impact of market volatility.
Flexible Options: SIPs allow you to invest small amounts monthly, making it a convenient way to grow wealth over time.
Gold Investments for Wealth Preservation
Gold has historically been a good hedge against inflation:

Gold ETFs and Sovereign Gold Bonds: These are convenient, providing the security of gold without physical storage.
Tax Efficiency: Sovereign Gold Bonds offer tax-free maturity proceeds if held till maturity, making them a tax-efficient choice.
Portfolio Hedge: Gold often performs well during market downturns, providing stability to your portfolio.
Diversified Equity and Debt Portfolio for Balanced Returns
Creating a mix of equity and debt in your portfolio offers balance:

Equity for Growth: Equity mutual funds, when actively managed, can offer high growth potential, which is crucial for long-term goals.
Debt for Stability: Debt funds or bonds provide stability, making your portfolio resilient to market fluctuations.
Risk Management: A balanced approach in equity and debt reduces risk while aiming for steady returns over time.
Final Insights
At age 40, investing in a mix of equity, bonds, and safe instruments is a balanced approach. Mutual funds offer growth, while bonds and FDs provide stability. Diversifying helps you achieve financial security and peace of mind, knowing that your wealth is built on a strong foundation.

With each choice, careful monitoring and periodic review will keep your portfolio aligned with your goals. A Certified Financial Planner (CFP) can guide you through this process, helping you adjust investments as needed. With their expertise, you can make informed choices that align with your risk appetite and financial aspirations.

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

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Ramalingam

Ramalingam Kalirajan  |6922 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 04, 2024

Asked by Anonymous - Nov 03, 2024Hindi
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Hi, My age is 30 and currently working in corporate in Gurugram and my salary is 30k. Apart from that, I have ancestral 20 acres agricultural land worth 8 to 10Cr approx. My father is a farmer and he is doing farming on it and earn about 20 to 22 lakh yearly (Expenses and labour cost included) We have debt of 20 Lakh as well. So my question is if I sell around 2 acres worth 1.2 Cr of agriculture land and invest on different streams. Like some portions in Matual funds, ETF and some portion in Real estate. It is a good decision? I want to retire early, most probably in next 5 to 10 years. That's why m thinking to do this and create wealth. I am highly against to sell all my land so m just want to take risk with my 2 acres of my land. Thanks.
Ans: Firstly, it's commendable that you are considering early retirement and wealth creation with such a thoughtful approach. Your plan to sell a small portion of your land to diversify investments aligns with your early retirement goal. Let's look at how you can manage this transition effectively for your desired future.

Understanding the Value of Your Agricultural Land
Your ancestral land is a significant asset. With a worth between Rs 8 to 10 crore, it provides stability and potential future income. Selling a portion, while maintaining most of it, is a balanced approach. The sale of 2 acres, worth approximately Rs 1.2 crore, can fund your diversified investments without losing the bulk of this valuable asset.

Debt Clearance: A Priority Step
With a debt of Rs 20 lakh, prioritizing debt repayment is crucial. Clearing debt offers financial relief and boosts your credit profile. Additionally, being debt-free is essential when pursuing early retirement. Consider allocating a portion of the Rs 1.2 crore sale proceeds toward this debt.

Investment Strategy: Exploring Mutual Funds
Instead of considering direct investments in ETFs, let's focus on actively managed mutual funds. These funds provide better potential for growth due to the professional expertise of fund managers. Certified Financial Planners (CFP) or Mutual Fund Distributors (MFD) guide you in selecting funds suited to your risk profile and goals.

Long-Term Growth Potential: Actively managed funds generally have more consistent growth compared to ETFs.

Flexibility: Fund managers actively adjust portfolios based on market conditions, enhancing returns.

Tax Efficiency: With mutual funds, you benefit from favorable tax treatment on long-term capital gains (LTCG) above Rs 1.25 lakh, taxed at 12.5%. Short-term gains (STCG) have a 20% tax rate, applicable if you hold funds for less than a year.

Disadvantages of ETFs and Direct Mutual Funds
While ETFs may seem appealing, their passive nature can lead to missed opportunities. Direct funds, on the other hand, lack the professional guidance a Certified Financial Planner provides, and you might miss out on the benefits of regularly managed investments.

ETFs Lack Active Management: Passive funds mirror indices, often missing opportunities to adapt to market changes.

Direct Mutual Funds Can Be Overwhelming: Investing directly means handling all fund choices and portfolio rebalancing alone, which can be challenging without financial expertise.

Value in Professional Guidance: Working with a CFP ensures a well-monitored portfolio tailored to your early retirement goals.

Evaluating Real Estate as an Investment
Since you already own substantial agricultural land, diversifying further into real estate may not be ideal. The illiquid nature of real estate investments makes them less adaptable to quick financial needs, especially for early retirement.

Early Retirement Planning: Ensuring Financial Security
With an income of Rs 30,000 from your corporate job and agricultural revenue from family farming, early retirement in the next 5 to 10 years is ambitious but achievable. To ensure financial security, your investments should prioritize growth, liquidity, and low maintenance.

Setting Clear Retirement Goals: Establish your financial requirements post-retirement, such as monthly expenses and desired lifestyle.

Building a Diversified Portfolio: Incorporate mutual funds for long-term growth, fixed-income instruments for stability, and possibly some gold bonds as a hedge.

Emergency Fund: Building a Safety Net
Creating an emergency fund is essential, especially if you plan to leave your corporate job. Set aside a portion of the proceeds from your land sale as a buffer for unexpected expenses. Ideally, an amount that covers 6-12 months of your expenses provides peace of mind and financial security.

Focused Wealth-Building Approach
Your wealth creation plan should be structured around a mix of long-term and stable investment avenues:

Mutual Funds for Growth: Actively managed funds can help your wealth grow consistently.

Fixed-Income Instruments for Stability: Debt funds or bonds provide reliable returns and capital preservation.

Periodic Portfolio Review: Ensure regular reviews with your Certified Financial Planner to keep your portfolio aligned with your goals.

Tax Considerations: Maximizing Returns
Selling agricultural land for non-farming use may involve capital gains tax. However, specific exemptions may apply to agricultural land sales, so consulting with a tax expert can help you maximize your returns and manage any tax liabilities.

Final Insights
Your decision to retain most of your ancestral land while diversifying investments is sound. Prioritizing debt clearance and focusing on mutual funds, with the guidance of a Certified Financial Planner, can position you well for early retirement. This diversified approach can help you achieve financial security and independence while holding onto your ancestral roots.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

...Read more

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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