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Ramalingam Kalirajan  |4045 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 23, 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
Prabhakkar Question by Prabhakkar on Feb 16, 2024Hindi
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Advice required regarding SWP in mutual funds?For monthly expenses how much percentage one can withdraw from mf corpus?

Ans: Understanding SWP in Mutual Funds
SWP (Systematic Withdrawal Plan) in mutual funds is an effective strategy for generating regular income in retirement. Let's delve into the key aspects of SWP and determine the optimal withdrawal percentage for monthly expenses.

Exploring SWP in Mutual Funds
SWP allows investors to withdraw a fixed amount at regular intervals from their mutual fund investments.

It offers flexibility in managing cash flow, ensuring a steady stream of income to meet living expenses.

SWP is suitable for retirees or individuals seeking supplementary income from their investment portfolio.

Determining Withdrawal Percentage
The withdrawal percentage from the mutual fund corpus depends on various factors:

Investment Horizon: Consider the duration for which you need the income and the sustainability of withdrawals over time.

Return Expectations: Assess the expected returns from your mutual fund investments to determine a sustainable withdrawal rate.

Risk Tolerance: Factor in your risk tolerance and the potential impact of market fluctuations on the withdrawal amount.

Optimal Withdrawal Percentage
While there's no one-size-fits-all approach, a withdrawal percentage of 3-4% of the mutual fund corpus is generally considered sustainable:

Preservation of Capital: A conservative withdrawal rate ensures the preservation of capital for future needs and unexpected expenses.

Longevity Risk: Lower withdrawal percentages mitigate the risk of outliving your savings, especially in the case of longer life expectancies.

Market Volatility: Conservative withdrawal rates provide a buffer against market volatility, ensuring a consistent income stream regardless of market conditions.

Benefits of SWP
SWP offers several benefits for investors:

Regular Income: Provides a steady stream of income to meet monthly expenses and maintain a desired lifestyle in retirement.

Flexibility: Allows customization of withdrawal frequency and amounts based on changing financial needs and market conditions.

Tax Efficiency: Depending on the investment holding period, withdrawals from mutual funds may attract favorable tax treatment compared to other income sources.

Drawbacks of SWP
Despite its advantages, SWP has some limitations:

Market Risk: Withdrawals from mutual funds are subject to market fluctuations, impacting the withdrawal amount and potentially eroding the investment corpus.

Inflation Risk: Fixed withdrawal amounts may not keep pace with inflation, reducing purchasing power over time if not adjusted periodically.

Tax Implications: Depending on the mutual fund category and holding period, withdrawals may incur capital gains tax, affecting overall returns.

Conclusion
SWP in mutual funds is a valuable tool for generating regular income in retirement. By determining an optimal withdrawal percentage based on your financial goals, risk tolerance, and investment horizon, you can ensure a sustainable income stream while preserving capital for the future.

Regular review and adjustments to the withdrawal strategy are essential to adapt to changing financial needs and market conditions effectively.

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  |4045 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 30, 2024

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Good Afternoon I am going to retire next month. After retirement, my major income is going to be from SIP /Mutual funds , which i have invested in the last 7 yrs. My consultant is advising SWP . Can you please explain me about SWP and what is tax liability on SWP. My funds are growing at 16+ percentage and please advise what is the safer percent I can withdraw monthly.
Ans: SWP stands for Systematic Withdrawal Plan, which is a facility offered by mutual funds to investors to withdraw a fixed or variable amount from their investments at regular intervals. With SWP, you can set up periodic withdrawals from your mutual fund investments, providing you with a regular income stream post-retirement.

Here's how SWP works:

Frequency and Amount: You can choose the frequency (monthly, quarterly, etc.) and the amount you want to withdraw through SWP. This amount can be a fixed sum or a variable amount based on your requirements.
Redemption Units: When you initiate an SWP, the mutual fund will redeem units from your investment to generate the specified withdrawal amount. These units are then liquidated, and the proceeds are transferred to your registered bank account.
Tax Implications: The tax liability on SWP depends on the type of mutual fund and the holding period. If you withdraw from equity-oriented funds (funds with more than 65% equity allocation), the gains are taxed as per capital gains tax rules. For debt-oriented funds, the gains are taxed based on the holding period: short-term gains (less than 3 years) are taxed at your applicable income tax slab rate, and long-term gains (more than 3 years) are taxed at 20% with indexation benefit.
Withdrawal Amount: The safer withdrawal percentage depends on various factors such as the expected returns of your mutual fund investments, your financial needs, and your risk tolerance. Generally, financial advisors recommend withdrawing 2% to 4% of your investment corpus annually to ensure sustainable withdrawals without depleting your capital too quickly.
Before initiating an SWP, it's advisable to consult with a financial advisor or tax consultant who can provide personalized guidance based on your investment portfolio, income requirements, and tax implications. They can help you determine the optimal withdrawal strategy to meet your retirement income needs while minimizing tax liabilities and preserving your investment capital.

..Read more

Ramalingam

Ramalingam Kalirajan  |4045 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 12, 2024

Asked by Anonymous - Apr 23, 2024Hindi
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Hello Gurus. I am 45 years old and working in a private firm. I plan to retire in about 15 years. I have adequate amount of savings in PPF, EPF, FDs and some Mutual Funds. Can you suggest what amount i need to invest monthly/yearly in a good SWP, for a withdrawal of say Rs 60,000 a month after 15 years.
Ans: It's commendable that you're planning ahead for your retirement. Let's calculate the amount you need to invest regularly in a Systematic Withdrawal Plan (SWP) to achieve your goal of withdrawing Rs 60,000 per month after 15 years.

Firstly, we need to determine the future value of your monthly withdrawals. Using a retirement calculator or financial planning software, we can estimate the corpus required to sustain a monthly withdrawal of Rs 60,000 for your desired retirement period, accounting for inflation and potential investment returns.

Once we have the estimated corpus needed, we can work backward to determine the required monthly/yearly investment in a suitable investment vehicle with growth potential, such as equity mutual funds or a balanced portfolio, to accumulate that corpus over the remaining 15 years.

Given your existing savings in PPF, EPF, FDs, and Mutual Funds, we'll consider integrating the SWP strategy with your overall portfolio to optimize returns and manage risk effectively.

It's crucial to review and adjust your investment strategy periodically to adapt to changing market conditions, financial goals, and risk tolerance.

Consulting with a Certified Financial Planner will provide personalized insights and recommendations tailored to your specific circumstances, ensuring a robust retirement plan aligned with your aspirations and financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |4045 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 15, 2024

Asked by Anonymous - May 08, 2024Hindi
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I want to invest 10 crore in MF and I need SWP. How much I can withdraw p.m.
Ans: Investing ?10 crores in mutual funds and setting up a Systematic Withdrawal Plan (SWP) requires careful planning to ensure a sustainable income stream while preserving your capital. As a Certified Financial Planner, I appreciate your consideration of SWP as a strategy to meet your financial needs. Let's calculate the monthly withdrawal amount based on your investment and desired withdrawal rate.

Step 1: Determine Withdrawal Rate
Start by determining the withdrawal rate you're comfortable with. A common rule of thumb is to withdraw 4-5% of your investment annually to maintain sustainable income while accounting for inflation and market fluctuations. Let's use a conservative withdrawal rate of 4% for our calculations.

Step 2: Calculate Annual Withdrawal Amount
With a ?10 crore investment, a 4% withdrawal rate would equate to ?40 lakhs annually (?10 crore x 4%). This amount represents the maximum annual withdrawal you can make through SWP without significantly depleting your capital over time.

Step 3: Convert Annual Withdrawal to Monthly
To determine the monthly withdrawal amount, divide the annual withdrawal by 12 (months). In this case, ?40 lakhs divided by 12 equals ?3,33,333.33 approximately. Therefore, you can withdraw approximately ?3.33 lakhs per month through SWP to meet your income needs while preserving your capital.

Step 4: Consider Tax Implications
It's essential to consider the tax implications of your SWP withdrawals, as they may be subject to taxation based on the type of mutual funds and holding period. Equity-oriented funds with over 65% allocation to equities may attract Long-Term Capital Gains (LTCG) tax if withdrawn after one year, while debt funds may incur Short-Term Capital Gains (STCG) or LTCG tax based on the holding period.

Step 5: Monitor Portfolio Performance
Regularly monitor your mutual fund portfolio's performance and adjust your withdrawal rate as needed based on market conditions, inflation, and changes in your financial needs. Periodic reviews will ensure that your SWP remains sustainable over the long term while addressing any fluctuations in investment returns.

Conclusion
By following these steps and considering factors such as withdrawal rate, tax implications, and portfolio monitoring, you can effectively implement a Systematic Withdrawal Plan (SWP) to meet your income requirements while safeguarding your capital. As a Certified Financial Planner, I recommend working with a professional advisor to optimize your SWP strategy and ensure it aligns with your long-term financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |4045 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 18, 2024

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Very nice advice by you Sir,I really appreciate your approach to help the invester whatever his financial standing is. Actually I made a mistake in monthly Withdrawal amount as 300000 instead of Rs 30000. Please give me rough idea about the amount one should investin Balanced SWP fund to get rs 30000 per month
Ans: Systematic Withdrawal Plan (SWP):

Determining Investment Amount: The amount you need to invest in an SWP to get Rs. 30,000 monthly depends on various factors like:

Current corpus in the mutual fund scheme
Expected rate of return
Investment tenure (how long you plan to withdraw monthly)
Taxation on SWP Withdrawals: Yes, withdrawals from SWP are generally taxable.

Short-term Capital Gains (STCG): If you invested in the fund within the last year, withdrawals are taxed at your income tax slab rate.
Long-term Capital Gains (LTCG): If you invested for over a year in equity funds, gains exceeding Rs. 1 lakh per year are taxed at 10%.
Alternative: Monthly SIP from FD Income:

Potential Benefit: Investing your monthly FD income in SIPs can be beneficial for long-term wealth creation. Equity markets have the potential for higher returns compared to FDs. Actively managed funds involve experienced fund managers who try to pick stocks to outperform the market. Actively managed funds come with higher fees compared to passively managed funds.

Important Consideration: SIPs are for long-term investment horizons (typically 5+ years). Equity markets can be volatile in the short term.

Recommendation:

Consult a Certified Financial Planner (CFP): A CFP can analyze your situation, risk tolerance, and retirement goals. They can recommend the right investment approach (SWP or SIP) and suggest suitable mutual fund schemes.
Here's a quick example (not a recommendation):

Current Corpus: Rs. 50 lakh
Expected Return: 8%
Investment Tenure: 15 years
Based on these assumptions, you might need to invest a larger amount in an SWP to generate Rs. 30,000 monthly. However, this is a simplified example, and a CFP can provide a more accurate calculation.

Remember:

Focus on Long Term: Prioritize a long-term investment horizon for SIPs.
Tax Implications: Understand the tax implications of SWP withdrawals.
Professional Guidance: Consulting a CFP is recommended for a personalized retirement plan.
By consulting a CFP, you can develop a strategy that meets your income needs and maximizes your retirement savings!
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |4045 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 18, 2024

Asked by Anonymous - Jun 12, 2024Hindi
Money
Sir, I have a sum of 70 lacs which can be invested in Mutual funds. If I plan for SWP, How much amount, I may get yearly.
Ans: Hope this message finds you well. You have Rs 70 lakhs to invest in mutual funds and are considering a Systematic Withdrawal Plan (SWP). Let’s explore the details, benefits, and potential returns of an SWP.

Understanding Systematic Withdrawal Plans (SWP)
A Systematic Withdrawal Plan allows you to withdraw a fixed amount at regular intervals. This method helps in creating a steady income stream from your investments.

What is SWP?
Regular Income: SWP provides a regular income by redeeming units of your mutual fund investments periodically.
Flexibility: You can choose the frequency (monthly, quarterly, annually) and the amount to withdraw.
Capital Protection: Helps in managing withdrawals without significantly eroding the invested capital.
Benefits of SWP
SWP offers multiple advantages which make it an attractive option for investors seeking regular income.

Steady Cash Flow
Predictable Income: SWP ensures a steady and predictable cash flow, aiding in financial planning.
Monthly Expenses: Ideal for covering monthly expenses without liquidating large portions of your investment.
Tax Efficiency
Capital Gains Tax: Withdrawals are subject to capital gains tax, which can be more tax-efficient than regular income.
Long-Term Gains: If the investment has been held for over a year, it qualifies for long-term capital gains tax benefits.
Rupee Cost Averaging
Market Fluctuations: SWP helps in mitigating the impact of market volatility by averaging the cost of withdrawals.
Reduced Risk: By not redeeming all units at once, it reduces the risk associated with market timing.
Determining Potential Returns
The amount you can withdraw annually depends on the performance of the mutual fund and your withdrawal rate. Let’s discuss how to estimate this.

Assumptions for Calculation
Investment Amount: Rs 70 lakhs.
Expected Return: Assume a conservative annual return of 8%.
Withdrawal Rate: Typically, a safe withdrawal rate is around 6-8% per annum.
Calculation Example
Annual Withdrawal: With a withdrawal rate of 6%, you can withdraw Rs 4.2 lakhs per year.
Monthly Withdrawal: This translates to Rs 35,000 per month.
Growth Factor: The remaining investment continues to grow, providing potential for increased withdrawals in the future.
Selecting the Right Mutual Funds
Choosing the right mutual funds is crucial for the success of your SWP. Consider the following factors:

Diversification
Equity Funds: Provide growth potential but are subject to market volatility.
Debt Funds: Offer stability and regular income with lower risk.
Balanced Funds: Combine equity and debt to balance risk and return.
Fund Performance
Historical Returns: Analyze the historical performance of the funds to gauge potential future returns.
Fund Manager: Consider the expertise and track record of the fund manager.
Risk Tolerance
Risk Appetite: Choose funds that align with your risk tolerance and financial goals.
Market Conditions: Be aware of current market conditions and economic outlook.
Managing Your SWP
To maximize the benefits of an SWP, effective management of the withdrawal plan is essential.

Periodic Review
Annual Review: Regularly review your investment portfolio and withdrawal strategy to ensure alignment with your financial goals.
Adjust Withdrawals: Adjust the withdrawal amount based on the performance of the investments and changing financial needs.
Reinvestment Strategy
Reinvest Excess: If the fund performs well, consider reinvesting a portion of the returns to ensure long-term capital growth.
Maintain Balance: Ensure a balance between withdrawals and reinvestment to sustain the investment corpus.
Addressing Inflation
Inflation can erode the purchasing power of your withdrawals. Here’s how to mitigate its impact:

Inflation-Adjusted Withdrawals
Increase Withdrawals: Periodically increase the withdrawal amount to keep pace with inflation.
Diversify Investments: Include funds that historically outpace inflation, such as equity funds.
Long-Term Growth
Growth-Oriented Funds: Invest in growth-oriented mutual funds that have the potential to deliver higher returns over the long term.
Review Strategy: Regularly review and adjust your investment strategy to counteract the effects of inflation.
Potential Risks and Mitigation
While SWP is a beneficial strategy, it’s essential to be aware of potential risks and ways to mitigate them.

Market Volatility
Diversify Portfolio: Diversify your investments across different asset classes to reduce risk.
Regular Monitoring: Regularly monitor market conditions and adjust your portfolio accordingly.
Sequence of Returns Risk
Initial Losses: Early losses can significantly impact the sustainability of withdrawals.
Buffer Assets: Maintain a buffer of low-risk assets to draw from during market downturns.
Final Insights
Your decision to invest Rs 70 lakhs in mutual funds with an SWP is wise, offering both growth and regular income. By selecting the right funds and managing withdrawals effectively, you can ensure a steady income while preserving your capital. Regularly review your strategy, stay informed about market conditions, and make adjustments as needed to achieve your financial goals.

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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