I am a 63 years old senior citizen , wish to get approximately 1 lakh per month for my monthly expenses . Want to know how much amount to invest in mutual funds in SWP. Please suggest mutual funds name to invest .After how much period of investment i will be able to get SWP amount in my account .

Ans: Hello, i can suggest the categories of funds that you can invest in, those are :
Large and mid cap - 20%
Mid cap - 10%
Small cap - 10%
Multicap - 20%
Equity hybrid - 20%
BAF - 10%
Emergency funds - 10%

Please note that these suggestions are based on your stated goals and the information you provided. It is always a good idea to consult with a financial advisor in person to better understand your risk tolerance, time horizon, and specific financial goals.

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.

Ans: Investment Considerations
Investment Amount: Rs 40 lakhs
SWP Objective: Regular monthly income
Risk Appetite: Moderate
Investment Horizon: Long-term
Recommended Fund Types for SWP
Balanced Advantage Funds
Features: These funds balance equity and debt, offering growth with reduced volatility. Ideal for generating regular income through SWP.
Hybrid Debt-Oriented Funds
Features: These funds invest predominantly in debt with some exposure to equity. They offer stability and moderate returns, suitable for SWP.
Equity Savings Funds
Features: These funds use a mix of equity, debt, and arbitrage opportunities. They provide stability with a potential for better returns.
Expected Returns and Monthly SWP
Expected Annual Returns
Balanced Advantage Funds: 8-10%
Hybrid Debt-Oriented Funds: 7-9%
Equity Savings Funds: 8-10%
SWP Calculation
Assuming an 8% annual return, let's calculate the monthly SWP:

Initial Investment: Rs 40 lakhs
Annual Return: 8%
Monthly SWP: We aim for a sustainable withdrawal rate, typically around 5-6% of the corpus annually.
Monthly SWP Amount
Annual Withdrawal: Rs 40,00,000 * 5% = Rs 2,00,000
Monthly SWP: Rs 2,00,000 / 12 ≈ Rs 16,667
With a 6% annual withdrawal rate:

Annual Withdrawal: Rs 40,00,000 * 6% = Rs 2,40,000
Monthly SWP: Rs 2,40,000 / 12 ≈ Rs 20,000
Final Insights
Balanced Advantage Funds: Suitable for moderate risk appetite with growth and stability.

Hybrid Debt-Oriented Funds: Ideal for lower risk and stable income.

Equity Savings Funds: Good for balancing risk and returns with stable income potential.

Sustainable SWP: With Rs 40 lakhs, expect Rs 16,667 to Rs 20,000 monthly.

Regularly review the performance and adjust the SWP as needed to ensure it aligns with your financial goals and market conditions.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Systematic Withdrawal Plan (SWP) is an excellent way to ensure regular income during retirement. Given that your father is 70 years old, it's important to balance growth and safety. Let’s assess your situation to provide a 360-degree solution.

Assessing the Lumpsum Amount
Investment Corpus: You intend to invest Rs. 8-9 lakhs. This amount is crucial in determining the monthly withdrawal amount of Rs. 10,000.

Sustainability of SWP: With Rs. 8-9 lakhs, withdrawing Rs. 10,000 monthly could be challenging over a long period. Let's explore how this can be managed.

Understanding SWP in Different Mutual Funds
Equity-Oriented Funds: These funds, such as large-cap, mid-cap, and flexi-cap, generally provide higher returns. However, they are also volatile. While equity can provide inflation-beating returns, it might not be the best sole option for a 70-year-old.

Hybrid Funds: A balanced or hybrid fund combines equity and debt. This mix can provide growth with lower volatility. It’s safer for an SWP at your father’s age.

Debt Funds: These funds are safer and less volatile. They might not offer high returns but can provide stable income. They are often used for SWP by retirees to preserve capital.

Which Type of Mutual Funds Are Good for SWP?
Balanced Approach: Combining equity and debt funds can create a balanced portfolio. This approach offers both growth and safety.

Two-Fund Strategy: Splitting the Rs. 8-9 lakhs into two different funds can diversify risk. One fund could be a hybrid fund, and the other a debt fund. This combination can provide stability and growth.

Safety First: Considering your father's age, prioritise safety. The bulk of the investment should be in debt or hybrid funds. A smaller portion can be in equity to capture growth potential.

Is SWP in Equity-Oriented Funds Wise?
Risk Consideration: Pure equity funds can be risky for someone in retirement. Market fluctuations can affect the fund value, impacting the sustainability of the SWP.

Diversification: If opting for equity-oriented funds, ensure they are part of a diversified portfolio. Avoid putting the entire amount in high-risk funds.

Long-Term Growth: While equity can provide good returns, it’s crucial to balance it with safer options, especially when relying on the funds for regular income.

Practical Insights on SWP Execution
Withdrawal Sustainability: If you withdraw Rs. 10,000 monthly from Rs. 8-9 lakhs, the sustainability depends on the fund’s performance. In a conservative estimate, this might last for 8-10 years in a balanced portfolio.

Reinvestment of Gains: If the funds perform well, you can reinvest the gains to extend the SWP period. This requires regular monitoring.

Consulting a CFP: To ensure the strategy aligns with your father’s needs, consult a Certified Financial Planner. They can tailor the fund selection to match his risk profile and income requirements.

Final Insights
Balanced Portfolio: Prioritise a mix of equity and debt, leaning more towards safety due to your father's age.

Two-Fund Strategy: Split the investment into two different funds to diversify risk and ensure stable withdrawals.

Monitoring: Regularly review the performance of the funds. Adjust the SWP if required to maintain sustainability.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in