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Sanjeev

Sanjeev Govila  |458 Answers  |Ask -

Financial Planner - Answered on Sep 20, 2023

Colonel Sanjeev Govila (retd) is the founder of Hum Fauji Initiatives, a financial planning company dedicated to the armed forces personnel and their families.
He has over 12 years of experience in financial planning and is a SEBI certified registered investment advisor; he is also accredited with AMFI and IRDA.... more
Ashokan Question by Ashokan on Aug 24, 2023Hindi
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I am 59 years male generating a decent income every month, saving and investing as per my well planned retirement and travel plans. I will get around Rs. 1.10 Lakh as additional one time income next month. I will not need it for a long time (say at least for 10 years). I want to get an income of Rs. 3000 just only once in a year from this bulk money. That's all. Remaining may be let it to grow. Please advise me to invest it suitably. Ready to take moderate risk. Thanks in advance.

Ans: You are expecting to get an additional amount of Rs 1.1 Lakhs next month, from the same you have a requirement of an annual payout of Rs. 3,000/- and the remaining amount will be invested for the long term (10 years) for wealth creation purpose.

In order to meet this payout requirement, you can invest the partial amount of Rs. 60,000 in a corporate FD providing annual interest payout of 7-8%, which will help you to meet the payout requirement.

The remaining amount of Rs. 50,000 can be invested in a good large cap fund which can provide you a likely annualised CAGR of 12% or so in 10 years’ investment horizon. The value of Rs. 50,000 invested today in large cap fund @12% CAGR will come out to be Rs. 1,55,000 approx.
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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Mutual Funds, Financial Planning Expert - Answered on May 18, 2024

Asked by Anonymous - May 10, 2024Hindi
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Hello sir, I want to invest 30 lakhs to generate monthly income, which is the best to get every month income? I need your valuable advice?
Ans: Generating Monthly Income: A Strategy for Investing 30 Lakhs

Understanding Your Financial Objective:

Hello! I appreciate your proactive approach towards financial planning. Let's explore the best options to generate a steady monthly income from your investment of 30 lakhs.

Assessing Income Needs:

Before diving into investment options, it's crucial to understand your monthly income requirements and risk tolerance to tailor a suitable strategy.

Exploring Income Generating Options:

We'll evaluate various investment avenues that offer regular income, such as fixed deposits, debt mutual funds, dividend-paying stocks, and systematic withdrawal plans (SWPs) from mutual funds.

Benefits of Fixed Deposits:

Fixed deposits provide a stable source of income with guaranteed returns. However, they may offer lower returns compared to other investment avenues and are subject to taxation.

Benefits of Debt Mutual Funds:

Debt mutual funds invest in fixed-income securities like bonds and government securities, offering potentially higher returns than fixed deposits. They also provide liquidity and tax efficiency.

Disadvantages of Direct Equity Investments:

Direct equity investments can be volatile and may not suit investors seeking stable income. Additionally, managing a diversified equity portfolio requires time and expertise.

Benefits of Systematic Withdrawal Plans (SWPs):

SWPs allow you to withdraw a predetermined amount from your mutual fund investments at regular intervals, providing a steady income stream while potentially benefiting from capital appreciation.

Disadvantages of Index Funds:

Index funds may not be ideal for generating regular income as they track specific market indices and may not prioritize dividend yield or income generation.

Benefits of Actively Managed Funds:

Actively managed funds offer the flexibility to adapt to market conditions and select dividend-paying stocks or fixed-income securities to optimize income generation.

Considering Tax Implications:

It's essential to assess the tax implications of your investment income and explore tax-efficient options to maximize your after-tax returns.

Consultation with a Certified Financial Planner:

Engaging with a Certified Financial Planner (CFP) ensures personalized advice tailored to your financial goals and risk tolerance. A CFP will help optimize your investment strategy to meet your income needs effectively.

Conclusion:

In conclusion, generating a monthly income from your investment of 30 lakhs requires a careful assessment of various options. By diversifying your portfolio across fixed deposits, debt mutual funds, and SWPs from mutual funds, you can create a sustainable income stream aligned with your financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |3744 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 06, 2024

Asked by Anonymous - Jun 05, 2024Hindi
Money
I am 64. Have a nominal pension being in private service and have some investments worth about a couple of crores. I need a steady income of Rs 1 lakh every month. Kindly let me know how much lump sum I should invest & where with the option of possible capital appreciation. Thanks in advance.
Ans: Creating a robust financial plan for your retirement years requires careful consideration. Given your age, current pension, and investment goals, it's vital to strike a balance between generating steady income and achieving potential capital appreciation.

Let's explore a comprehensive approach to meeting your financial needs.

Understanding Your Financial Needs
At 64, your primary goal is to ensure a steady monthly income of Rs 1 lakh. Given your nominal pension, supplementing this with a reliable investment strategy is essential. You also have a substantial investment corpus worth about a couple of crores, which provides a solid foundation.

Evaluating Your Current Financial Position
Before diving into investment strategies, let's assess your existing investments. If you hold any insurance-cum-investment policies like LIC or ULIP, consider their performance and potential. Such policies often combine life insurance with investment, leading to lower returns due to high fees and charges. Surrendering these policies and reinvesting the proceeds into mutual funds might be more beneficial.

Investment Strategy: Systematic Withdrawal Plan (SWP)
A Systematic Withdrawal Plan (SWP) is a viable strategy for generating regular income from your investments. SWP allows you to withdraw a fixed amount from your mutual fund investments at regular intervals, providing a steady income stream. This approach not only ensures regular income but also keeps your principal investment intact to some extent, offering potential capital appreciation.

Benefits of SWP
Regular Income: SWP provides a predictable and steady stream of income, which is crucial for managing your monthly expenses in retirement. This ensures that you receive a consistent amount each month without worrying about market fluctuations.

Capital Preservation: By systematically withdrawing only a portion of your investment, you help preserve your capital. This allows the remaining investment to continue growing, potentially increasing your wealth over time.

Flexibility: SWPs offer flexibility in terms of withdrawal amounts and frequency. You can adjust the withdrawal amount based on your needs and financial situation, ensuring that you have control over your income flow.

Tax Efficiency: SWP withdrawals can be tax-efficient as each withdrawal consists of both capital and gains. This can help in reducing the overall tax liability compared to other forms of income. The longer you hold your investments, the more tax-efficient they become.

Calculating the Required Lump Sum
To determine the lump sum required to generate Rs 1 lakh per month through SWP, we need to consider an average annual return. Assuming an annual return of 8%, you would need a substantial amount to support this withdrawal rate. Given the variability of market returns, it's crucial to plan conservatively to ensure the sustainability of your withdrawals.

Based on the target monthly income and the anticipated return, your existing investment corpus of about two crores appears sufficient. However, a more detailed calculation and projection with the help of a Certified Financial Planner (CFP) would ensure precision and confidence in your strategy.

Benefits of Actively Managed Funds
Investing in actively managed funds through a Certified Financial Planner (CFP) can offer numerous advantages. Actively managed funds are managed by professional fund managers who make investment decisions based on market analysis and trends. These funds aim to outperform the market, providing higher returns compared to index funds.

Disadvantages of Index Funds
Index funds, which passively track a market index, often have lower returns compared to actively managed funds. They lack the flexibility to respond to market changes and opportunities, which can limit potential gains. The absence of active management means index funds might miss out on profitable investment opportunities that fund managers could capitalize on.

Regular vs. Direct Mutual Funds
When considering mutual funds, opting for regular funds through a CFP is advisable over direct funds. Regular funds provide access to professional advice and guidance, ensuring your investments align with your financial goals and risk tolerance. Direct funds, while having lower expense ratios, lack this personalized advice, which can be crucial in managing your portfolio effectively.

Diversification for Risk Management
Diversifying your investment portfolio is crucial to managing risk and ensuring steady returns. Consider allocating your investments across various asset classes, such as equity, debt, and hybrid funds.

Equity Funds: These funds invest in stocks and offer potential for high returns. While they are riskier, their long-term growth potential can contribute to capital appreciation. Given your need for capital appreciation along with income, a portion of your portfolio should be allocated to equity funds. These funds, managed by experts, aim to outperform the market, providing better returns over time.

Debt Funds: These funds invest in fixed-income securities like bonds and are relatively safer. They provide regular income with lower risk, ensuring stability in your portfolio. Debt funds can offer more predictable returns and help in balancing the overall risk in your portfolio.

Hybrid Funds: These funds combine both equity and debt investments, offering a balanced approach. They provide growth potential while managing risk, making them suitable for steady income and capital appreciation. Hybrid funds can be an excellent choice for retirees, as they offer the best of both worlds—potential for growth and stability.

Tax Efficiency
When planning your investments, consider the tax implications of different investment options. Mutual funds offer tax benefits, especially long-term capital gains, which are taxed at a lower rate compared to other income sources. SWPs from mutual funds can be structured to minimize tax liability, as each withdrawal consists of both capital and gains, reducing the overall tax burden.

Emergency Fund and Contingency Planning
Ensure you have an emergency fund equivalent to at least 6-12 months of your monthly expenses. This fund should be easily accessible and kept in a liquid investment option like a savings account or liquid mutual fund. Having an emergency fund provides a safety net for unexpected expenses without disrupting your main investment strategy. This is a crucial aspect of retirement planning, as it ensures that you can handle unforeseen financial needs without affecting your long-term investments.

Reviewing and Rebalancing Your Portfolio
Regularly reviewing and rebalancing your investment portfolio is crucial to maintaining its alignment with your financial goals. Market conditions and personal circumstances can change, necessitating adjustments to your portfolio. A CFP can help you monitor your investments and make necessary changes to optimize returns and manage risk. Regular portfolio reviews ensure that your investments remain aligned with your risk tolerance and financial objectives, adapting to any changes in the market or your personal situation.

Role of a Certified Financial Planner
A Certified Financial Planner (CFP) can provide valuable insights and guidance in managing your investments. They can help you create a customized financial plan, considering your income needs, risk tolerance, and long-term goals. A CFP's expertise ensures that your investment strategy is well-balanced and aligned with your financial objectives. Their professional advice can help you navigate complex financial decisions, ensuring that you make informed choices to secure your financial future.

You have done an excellent job accumulating a substantial corpus. This provides a solid foundation for a comfortable retirement. Your commitment to ensuring a steady income in retirement is commendable. It's normal to seek guidance in managing your finances, and taking proactive steps shows your dedication to financial well-being.

Continuous Learning and Adaptation
Financial planning is a dynamic process that requires continuous learning and adaptation. Stay informed about market trends and investment opportunities. Regularly engage with your CFP to discuss any changes in your financial situation or goals. Adapting to new information and market conditions is key to successful financial management.

Conclusion
Achieving a steady income of Rs 1 lakh per month in retirement requires a well-thought-out investment strategy. Utilizing a Systematic Withdrawal Plan (SWP) with a diversified portfolio of mutual funds can provide the necessary income while ensuring potential capital appreciation. Opting for actively managed funds through a Certified Financial Planner offers the advantage of professional guidance and higher returns compared to index funds. Regularly reviewing and rebalancing your portfolio, along with maintaining an emergency fund, are essential steps in securing your financial future.

Your commitment to financial planning and securing a comfortable retirement is commendable. By following a strategic investment approach, you can achieve your financial goals and enjoy a worry-free retirement. Always remember to seek professional advice and continuously adapt your strategy to changing circumstances.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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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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