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Kirtan

Kirtan A Shah  | Answer  |Ask -

MF Expert, Financial Planner - Answered on Sep 29, 2023

Kirtan A Shah is a certified financial planner and managing director, private wealth, at Credence Family Office.
He is also a Certified International Wealth Manager and Financial Engineering and Risk Manager.
Shah is the co-author of Financial Service Management and Financial Market Operations, which are used as reference books for Mumbai University.
He is frequently seen on CNBC, Zee Business, ET NOW & BQ Prime as an expert guest.... more
Rajesh Question by Rajesh on Sep 28, 2023Hindi
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My age is 57 yrs with no salary income. I had been working till last year & dependent family is mother & wife. Considering present & future economy of India, Please suggest the amount for lumpsum MF for SWP of 25000 Rs. and which MFs to be selected?

Ans: - You will need to invest roughly 50L for 25,000/month withdrawal
- I am assuming you to withdraw a maximum of 6% from SWP
- Use only Debt Mutual Funds to do SWPs & nothing else
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  |6995 Answers  |Ask -

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

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Sir, I am 72 years old and want to invest Rs 15 lac in M.F, in swp.already invested 22 lac in MF .I am high risk taker . I want swp amount after one year. Please suggest M.F schemes . Thanks
Ans: Given your risk appetite and requirement for SWP after one year, it's crucial to focus on mutual fund schemes that offer potential for high returns while considering the relatively short investment horizon. Here are some suggestions:

Large & Midcap Funds: These funds invest in a mix of large-cap and mid-cap stocks, offering a balance between growth potential and stability. Look for schemes with a track record of consistent performance and experienced fund management.
Sectoral/Thematic Funds: If you have specific sectoral preferences and are willing to take higher risks, you can consider investing in sectoral or thematic funds. These funds focus on specific sectors or themes like technology, healthcare, or infrastructure, offering the potential for higher returns but also higher volatility.
Aggressive Hybrid Funds: Aggressive hybrid funds invest primarily in equities with a smaller allocation to debt instruments. They are suitable for investors seeking growth with relatively lower volatility compared to pure equity funds.
Flexi Cap Funds: These funds have the flexibility to invest across market capitalizations based on market conditions. They offer a dynamic approach to asset allocation and can adapt to changing market trends.
Mid & Small Cap Funds: If you have a higher risk tolerance and a longer investment horizon, mid and small-cap funds can potentially offer higher returns. However, they also come with higher volatility and risk, so careful selection and monitoring are essential.
When selecting mutual fund schemes, focus on factors such as fund performance track record, fund manager's experience and strategy, expense ratio, and risk-adjusted returns. Additionally, consider diversifying your investments across multiple schemes to spread risk.

It's advisable to consult with a certified financial planner or investment advisor who can assess your financial situation, risk tolerance, and investment goals to provide personalized recommendations aligned with your needs and preferences.

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Ramalingam

Ramalingam Kalirajan  |6995 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 01, 2024

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Ramalingam Kalirajan  |6995 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 21, 2024

Money
Hi If I want to have a monthly income of 35k as SWP how much should I have in mf corpus?
Ans: To achieve a monthly income of Rs 35,000 through a Systematic Withdrawal Plan (SWP), you need to carefully plan your mutual fund investment. SWP allows you to withdraw a fixed amount from your mutual fund investment at regular intervals. It provides a stable income while keeping your principal invested.

Factors Affecting SWP
Several factors influence the amount of corpus required for an SWP. These factors include:

Withdrawal Rate: The percentage of your corpus you withdraw each month. A lower withdrawal rate preserves your corpus for a longer time.

Expected Rate of Return: The return you expect from your mutual fund investment. Higher returns may allow for a smaller initial corpus.

Investment Tenure: The longer you plan to withdraw, the larger the corpus you'll need. Planning for a long-term SWP is crucial.

Estimating the Required Corpus
To calculate the required corpus, you need to consider the expected rate of return and the withdrawal rate. Let's break it down:

Expected Rate of Return: Typically, equity mutual funds can offer an average return of 10-12% over the long term. However, it's essential to remain conservative in your estimates to account for market volatility.

Withdrawal Rate: For a sustainable withdrawal plan, a withdrawal rate of 4-5% per year is often recommended. This rate helps preserve the principal while providing regular income.

Monthly Income: You want to generate Rs 35,000 per month.

Given these factors, a conservative approach would be to estimate a corpus based on a 4-5% annual withdrawal rate.

Example Estimation
If you wish to withdraw Rs 35,000 per month (Rs 4,20,000 per year) and maintain a sustainable withdrawal rate, you may need a corpus in the range of Rs 84 lakhs to Rs 1.05 crores. This estimation assumes a 5% annual withdrawal rate.

However, it's important to note that this is a rough estimate. The actual corpus required can vary based on market conditions, inflation, and your specific needs.

Benefits of Actively Managed Funds Over Index Funds
When investing in mutual funds, actively managed funds often outperform index funds in the long run. Here's why:

Expert Management: Actively managed funds are handled by experienced fund managers who actively pick stocks to outperform the market.

Flexibility: Fund managers can adapt to market changes and make strategic decisions, which may lead to better returns.

Potential for Higher Returns: Unlike index funds that mirror the market, actively managed funds aim to beat the market, offering the potential for higher returns.

Disadvantages of Index Funds
Index funds, while simple and low-cost, have their drawbacks:

No Outperformance: Index funds only match the market's performance, offering no chance of beating it.

Lack of Flexibility: Index funds follow a fixed portfolio of stocks, regardless of market conditions, which might not always be beneficial.

Limited Downside Protection: During market downturns, index funds can suffer as they are tied to the overall market performance.

Importance of Regular Funds Through a Certified Financial Planner
Investing through regular mutual funds with the guidance of a Certified Financial Planner (CFP) can be highly beneficial:

Personalized Advice: A CFP provides tailored investment strategies based on your financial goals and risk appetite.

Continuous Monitoring: Regular funds through a CFP come with ongoing monitoring and adjustments to your portfolio, ensuring alignment with your goals.

Expertise and Experience: A CFP brings expertise and experience to your investment planning, helping you navigate market complexities.

Risks and Considerations
While SWP provides a regular income, it comes with certain risks:

Market Volatility: Your returns may vary due to market fluctuations, affecting the longevity of your corpus.

Inflation: Inflation erodes the purchasing power of your withdrawals over time. It's crucial to account for inflation in your planning.

Longevity of Corpus: If the withdrawal rate is too high, you risk depleting your corpus faster than expected. A balanced approach is necessary.

Reinvesting for Growth
To ensure your SWP lasts longer, consider reinvesting any excess returns. For example:

Dividend Reinvestment: Choose funds that offer dividend reinvestment options to grow your corpus.

Periodic Reviews: Regularly review your SWP plan and make adjustments based on market conditions and your financial needs.

Diversification of Investments
Diversification is key to maintaining a stable SWP:

Balanced Funds: Invest in a mix of equity and debt funds to balance risk and return.

Multi-Cap Funds: These funds invest across market capitalizations, providing exposure to various sectors and reducing risk.

Debt Funds: Include debt funds in your portfolio for stability and regular income, especially during market downturns.

The Role of Insurance
While planning your SWP, don't overlook the importance of insurance:

Life Insurance: Ensure you have adequate life insurance to protect your family’s financial future.

Health Insurance: Secure comprehensive health insurance to cover medical expenses and prevent dipping into your SWP corpus.

Finally
Achieving a stable monthly income through SWP requires careful planning and a well-structured mutual fund portfolio. By considering factors like withdrawal rate, expected returns, and market conditions, you can estimate the corpus needed to meet your income goals.

Actively managed funds, guided by a Certified Financial Planner, offer the potential for better returns and tailored advice, ensuring your SWP plan aligns with your financial objectives. Remember, a balanced approach with diversification and regular reviews is key to a successful SWP strategy.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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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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