Home > Money > Question
Need Expert Advice?Our Gurus Can Help
Ramalingam

Ramalingam Kalirajan  |9736 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 17, 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
Apurv Question by Apurv on Apr 17, 2024Hindi
Listen
Money

Assuming 12% return annually on lumpsum investment of 25 lakhs, I want to start SWP on 26000 monthly for 30 years. What would be the best funds to go for and what other factors do I need to consider while making the final decision ?

Ans: strategy:

Choosing Mutual Funds for SWP:

While a 12% annual return assumption can be used for initial calculations, achieving that consistently over 30 years is difficult. Here's a framework to select funds for your SWP:

Asset Allocation: Consider your age, risk tolerance, and financial goals. A balanced portfolio with equity and debt funds is recommended for SWP. For example, a 60% equity and 40% debt allocation might be suitable.

Equity Funds: Large-cap or multi-cap funds can provide a good balance of growth and stability. Look for funds with a good track record, low expense ratios, and diversification across sectors.

Debt Funds: Debt funds like short-term or income funds can provide regular income and stability to your SWP withdrawals. Consider factors like credit quality of the underlying investments and maturity of the debt instruments.

Here's a suggestive asset allocation, but consult a financial advisor for personalization:

Equity Funds (60%): Invest in 2-3 well-diversified equity funds (large-cap or multi-cap) with a proven track record.
Debt Funds (40%): Invest in 1-2 debt funds (short-term or income) with good credit quality and suitable maturity profile to meet your monthly withdrawal needs.
Other Factors to Consider:

Investment Horizon: 30 years is a long time. Your asset allocation might need adjustments as you near retirement and your risk tolerance changes.
Inflation: A 12% return assumption might not fully outpace inflation. Consider a slightly higher return expectation to maintain purchasing power over time.
Tax Implications: Consult a tax advisor to understand the tax implications of SWPs, especially capital gains taxation on redeemed units.
Review and Rebalance: Periodically review your portfolio performance (at least annually) and rebalance if needed to maintain your desired asset allocation.
Contingency Planning: Factor in potential emergencies or fluctuations in income. Maintain an adequate contingency fund outside your SWP.
Remember: This is general information, and you should consult a qualified financial advisor for personalized investment advice tailored to your specific financial situation and risk tolerance. They can help you choose the right mutual funds, create a comprehensive SWP strategy, and consider all the relevant factors for your 30-year investment journey.
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.
Money

You may like to see similar questions and answers below

Ramalingam

Ramalingam Kalirajan  |9736 Answers  |Ask -

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

Asked by Anonymous - Apr 12, 2024Hindi
Listen
Money
Sir, I am 59 years old, will retire in January 2025, I want to make SWP of Rs.30 lakh so that I can get Rs 20K monthly pension. Which fund I will select and how to invest ?
Ans: As you approach retirement, it's essential to plan for a steady income stream to support your lifestyle. Here's how you can achieve your goal of setting up a Systematic Withdrawal Plan (SWP) to generate Rs. 20,000 monthly pension from a Rs. 30 lakh corpus:

• Given your age and the need for stable income, consider investing in debt mutual funds or conservative hybrid funds.
• These funds typically invest in fixed-income securities like bonds and offer regular income through dividends or SWPs.

• Look for funds with a track record of consistent returns and a focus on capital preservation.
• Conservative debt funds or monthly income plans (MIPs) may be suitable options for generating steady income while minimizing risk.

• Calculate the SWP amount needed to generate Rs. 20,000 monthly pension from your Rs. 30 lakh corpus.
• Consider factors such as expected returns, withdrawal frequency, and fund expenses when determining the SWP amount.

• It's crucial to review your investment portfolio regularly and adjust your SWP amount as needed based on market conditions and your financial goals.
• Consult with a Certified Financial Planner to help you select the appropriate mutual fund and set up the SWP to meet your retirement income needs.

• Ensure you have a contingency fund set aside for emergencies to cover unexpected expenses during retirement.
• Additionally, consider diversifying your retirement income sources, such as annuities or senior citizen savings schemes, for added financial security.

By carefully selecting the right mutual fund and setting up a disciplined SWP strategy, you can create a reliable income stream to support your retirement lifestyle. Stay focused on your financial goals and consult with a financial advisor for personalized guidance tailored to your needs. Best wishes for a happy and fulfilling retirement!

..Read more

Ramalingam

Ramalingam Kalirajan  |9736 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 08, 2024

Listen
Money
Hello everyone! I want to start an SWP. I'm ready to invest 25 lakhs at once and need 26000 every month for the next 30 years.I'm expecting 12%-15% CARG. Please suggest to me should I invest in one fund or multiple funds, what would be the better approach and which will be the best fund ?
Ans: Starting a Systematic Withdrawal Plan (SWP) is a wise decision for generating regular income from your investment corpus. Here's how you can approach it:
1. Investment Strategy: Given your requirement for regular monthly income over the next 30 years, it's essential to adopt a balanced investment strategy. Diversifying your investment across multiple funds can help mitigate risks and enhance returns over the long term.
2. Multiple Funds vs. Single Fund: Opting for multiple funds provides diversification across different asset classes, sectors, and fund managers, reducing concentration risk. It's advisable to spread your investment across equity, debt, and hybrid funds based on your risk tolerance and investment horizon.
3. Asset Allocation: Allocate your investment based on your risk appetite and financial goals. For instance, you can consider investing a portion in equity funds for potential capital appreciation and the remaining in debt or hybrid funds for stability and regular income.
4. Fund Selection: Choose funds with a track record of consistent performance, experienced fund managers, and a robust investment process. Look for funds that align with your risk profile and investment objectives. Consider factors such as fund size, expense ratio, risk-adjusted returns, and portfolio quality.
5. Risk Management: While aiming for a CAGR of 12%-15% is ambitious, it's crucial to assess your risk tolerance and be prepared for market volatility. Consider a more conservative approach if you have a lower risk appetite.
6. Regular Review: Periodically review your investment portfolio to ensure it remains aligned with your financial goals and risk tolerance. Rebalance your portfolio if needed to maintain the desired asset allocation.
As for specific fund recommendations, it's essential to conduct thorough research or consult a certified financial planner (CFP) who can provide personalized advice tailored to your financial situation, goals, and risk profile.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |9736 Answers  |Ask -

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

Asked by Anonymous - Apr 23, 2024Hindi
Listen
Money
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  |9736 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 27, 2024

Money
My father's is retiring next year in 2025 and would like to Invest Rs 50 Lakhs I I need to know best funds for SWP which would provide 20-25K monthly Income ?
Ans: Congratulations to your father on his upcoming retirement! It's wonderful that he is thinking about how to invest his Rs. 50 lakhs to generate a steady monthly income. Let’s explore the best options for setting up a Systematic Withdrawal Plan (SWP) to provide a monthly income of Rs. 20,000-25,000.

Understanding SWP (Systematic Withdrawal Plan)
A Systematic Withdrawal Plan (SWP) is an excellent option for retirees. It allows regular withdrawals from a lump sum investment in mutual funds. This way, your father can receive a fixed amount monthly while keeping the rest of his money invested.

Benefits of SWP
Regular Income: SWP ensures a steady income stream, making it easier to manage monthly expenses. This is particularly beneficial during retirement when a consistent cash flow is essential.

Tax Efficiency: SWP can be more tax-efficient than traditional fixed deposits. Only the capital gains portion of the withdrawal is taxed, not the principal amount. This can lead to significant tax savings, especially over the long term.

Capital Appreciation: The remaining invested amount continues to grow, offering potential capital appreciation over time. This means your father's investment can keep pace with inflation and potentially increase in value.

Flexibility: SWP allows changes in withdrawal amounts and frequency based on financial needs. If your father's expenses increase or decrease, he can adjust the SWP accordingly.

Factors to Consider When Choosing Funds for SWP
Risk Tolerance
Your father's risk tolerance is crucial. Since he is retiring, preserving capital while generating income is vital. Balanced funds or conservative hybrid funds are ideal. They offer a mix of equity and debt, providing stability and growth potential.

Investment Horizon
Although your father needs regular income, the investment horizon should be long-term. This helps mitigate market volatility and maximizes returns. A mix of equity and debt ensures that the portfolio is not overly exposed to market risks.

Fund Performance
Choose funds with a consistent track record. Look for funds that have performed well over the last 5-10 years. Stability and reliability are key when selecting funds for retirement income. Past performance is not a guarantee of future returns, but it can indicate how the fund has managed market cycles.

Expense Ratio
Opt for funds with low expense ratios. High expense ratios can eat into returns, reducing the amount available for monthly withdrawals. A lower expense ratio means more of your money stays invested and working for you.

Professional Management
Actively managed funds are preferable. They are managed by experienced professionals who adjust the portfolio based on market conditions. This reduces risk and improves returns compared to index funds. Active management can provide the necessary expertise to navigate volatile markets and optimize returns.

Types of Funds Suitable for SWP
Balanced Funds
Balanced funds invest in a mix of equities and debt. They provide stability and growth, making them ideal for SWP. They aim to balance risk and return, which is crucial for retirees. By investing in both equities and debt, balanced funds can offer the potential for higher returns than pure debt funds while maintaining a lower risk profile than pure equity funds.

Conservative Hybrid Funds
These funds invest primarily in debt instruments and a smaller portion in equity. They offer stability with some growth potential. They are suitable for investors with a low risk appetite. The debt component provides steady income and preserves capital, while the equity component offers growth potential.

Equity Savings Funds
These funds invest in a mix of equity, debt, and arbitrage opportunities. They offer moderate risk and return. The debt component provides stability, while the equity component offers growth. Arbitrage opportunities help in reducing risk further and can provide consistent returns even in volatile markets.

Monthly Income Plans (MIPs)
MIPs primarily invest in debt instruments and a small portion in equity. They aim to provide regular income while preserving capital. They are suitable for conservative investors. The primary goal of MIPs is to provide a steady income stream, making them ideal for retirees looking for regular income.

Setting Up the SWP
Calculating the Withdrawal Amount
To generate Rs. 20,000-25,000 monthly, the SWP should be set up based on expected returns. Assuming a conservative annual return of 8%, an SWP can be structured to withdraw around Rs. 20,000-25,000 monthly without depleting the capital too quickly. This calculation ensures that the withdrawals are sustainable over the long term.

Starting the SWP
Once the funds are selected, invest the Rs. 50 lakhs in these funds. Set up the SWP to withdraw the desired amount monthly. Regularly review and adjust the SWP based on fund performance and changing needs. It's important to start the SWP after understanding the withdrawal rate that ensures the capital lasts through the retirement period.

Tax Implications
SWP is tax-efficient. Only the capital gains portion of the withdrawal is taxed. Long-term capital gains from equity funds (held for more than a year) are taxed at 10% above Rs. 1 lakh per year. Short-term gains are taxed at 15%. Debt fund gains are taxed based on the holding period, with indexation benefits for long-term gains. Understanding the tax implications can help in effective planning and maximizing after-tax returns.

Monitoring and Adjusting the SWP
Regular Review
Regularly review the SWP and the performance of the funds. This ensures the strategy remains aligned with financial goals. Adjustments might be necessary based on market conditions and changing financial needs. Regular reviews help in ensuring that the withdrawals are sustainable and the investment continues to meet the income needs.

Rebalancing the Portfolio
Periodically rebalance the portfolio to maintain the desired asset allocation. This ensures the portfolio remains aligned with risk tolerance and investment goals. Rebalancing helps in managing risk and ensuring that the investment strategy remains effective.

Emergency Fund
Maintain an emergency fund separate from the SWP. This provides a buffer for unexpected expenses without disrupting the SWP. An emergency fund ensures that you don't have to withdraw more than planned from the SWP, preserving the capital for future needs.

Final Insights
Investing Rs. 50 lakhs through an SWP is a smart move for generating a steady monthly income for your father. By choosing the right mix of balanced, conservative hybrid, equity savings, and monthly income plans, he can achieve a stable income while preserving his capital. Regular reviews and adjustments will ensure the SWP remains effective and aligned with his financial goals.

Remember, it’s important to consult a certified financial planner for personalized advice. They can help tailor the SWP to your father’s specific needs and circumstances, ensuring a secure and comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |9736 Answers  |Ask -

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

Listen
Money
Sir,I am Sreejith..I am looking to do an SWP for my father, who is 70 years old now, targeting a monthly withdrawal of Rs.10,000/-. The lumpsum amount intending to invest is Rs.8-9 lakhs. Is this possible with this amount to withdraw an amount of of Rs.10,000/-.per month? Which type of mutual funds are good for doing SWP ? Is it wise to do SWP in equity oriented funds like large cap, Mid cap,Flexi cap etc. Also is it good to do SWP in two mutual funds with the above Rs.8-9 lakhs. ?Sir, Iam expecting your valuable reply.
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

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |9736 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 15, 2025

Money
Hi Sir, I am 32 years old, married and have a 4 month old daughter. I am working in a defense based private company. I earn 53K in hand. My monthly expenses come to around 20K. I have just started investing in mutual funds and doing a SIP of Rs.8000 per month. I have invested around 1.5 lakhs across multiple funds by now. I also have around 1.2lakhs in my EPFO account. I have saved 20K per month for my daughter for the past year which totals around 2 lakhs right now which I want to invest in her name for the long term. Besides these, I do not own any assets or have any liabilities as of now. Please suggest where to invest the amount I have saved for my daughter for best returns. And also please suggest how to plan for my retirement considering similar monthly expenditure with addition of daughters education and marriage.
Ans: You are in a very important phase of life. At 32, with a young child and a steady income, you have made a solid beginning. Your habit of saving and investing early will give you a big edge. Your family is depending on you, and your discipline will secure their future.

Let’s look at everything in a structured and simple way.

? Understanding Your Current Financial Situation

– Your income is Rs.53000 in hand.
– You spend Rs.20000 monthly.
– You save and invest the rest, which is very good.
– You already do SIP of Rs.8000 per month.
– You have Rs.1.5 lakhs in mutual funds.
– You have Rs.1.2 lakhs in EPFO.
– You have Rs.2 lakhs saved for your daughter.
– You have no loans.
– You have no assets like house or gold.

This is a healthy start. You are already spending only 40% of your income. That gives room to build wealth. Now, let us look at what to do next.

? Investing Your Daughter’s Rs.2 Lakhs: Long-Term View

This is for your daughter’s future. Likely uses could be higher education or marriage. Both are long-term goals.

– She is only 4 months now.
– You have 15 to 20 years time.
– This gives scope for growth-based investing.

Here’s what you can do:

– Invest this Rs.2 lakhs in 2 or 3 equity mutual funds.
– Choose actively managed funds for better long-term returns.
– Avoid index funds. They only copy the market and don’t beat inflation.
– Actively managed funds have expert fund managers.
– They adjust based on market opportunities.
– Over 15 years, they usually outperform index funds.

Also,

– Use Regular Plans through a CFP-backed Mutual Fund Distributor.
– Avoid Direct Plans unless you can manage and review investments on your own.
– Direct plans don’t provide support, review, or portfolio balancing.
– Regular Plans through a Certified Financial Planner help you stay disciplined.
– A qualified planner monitors the market and guides rebalancing.
– You avoid costly emotional mistakes.

Strategy for daughter’s funds:

– Divide Rs.2 lakhs across 2 or 3 good equity mutual funds.
– Stay invested for 15 years minimum.
– Do not withdraw in between.
– Review yearly with help of Certified Financial Planner.
– This can grow into a good education or marriage corpus.

Also, since you are already saving Rs.20000 every month for her, keep it up.
Even Rs.5000 or Rs.10000 monthly in SIP for her will make a big difference over time.

? Planning Your Retirement: Long-Term but Needs Focus

Retirement planning should start now. You have time, but the earlier, the better.

– You are 32 now.
– You can aim to retire at 60.
– That gives you 28 years to save.
– But inflation reduces the value of money.
– So Rs.20000 expenses today will grow a lot by retirement.

You need to plan for:

– Your own expenses after retirement
– Your wife’s needs
– Medical costs in old age
– Travel and emergencies
– No income after retirement

What you should do:

– Increase your SIP gradually as income rises.
– Right now, you invest Rs.8000 in mutual funds.
– Increase it by Rs.1000 every year.
– Also start a new SIP only for retirement.
– Separate from daughter’s goal.

Why equity mutual funds help:

– Equity mutual funds beat inflation over long term.
– They build wealth over 20+ years.
– Don’t choose debt mutual funds for retirement goals.
– Debt funds give stable returns but low growth.
– They are good for short-term goals.

Continue EPFO contribution:

– EPFO is a good long-term tool.
– It gives safe and tax-free corpus at retirement.
– Don’t withdraw EPF for other uses.
– Let it grow till retirement.

? Tracking Your Monthly Budget and Investing Discipline

Your expenses are only Rs.20000.
You save nearly Rs.30000 each month.
This gives you enough to grow wealth for all goals.

– Continue SIP of Rs.8000 or increase it.
– Start SIP of Rs.5000 for daughter.
– Start SIP of Rs.5000 for retirement.
– Keep Rs.5000 to Rs.7000 for emergency savings.
– Maintain Rs.1 lakh as emergency fund.
– Park it in liquid fund or FD for easy access.

This way:

– You cover child’s needs.
– You build retirement wealth.
– You stay ready for emergencies.

? Life Insurance and Health Insurance: Non-Investment but Vital

These are not investments. But they are must-haves.
They protect your family and finances from sudden shocks.

– Buy a term insurance of Rs.50 lakhs to Rs.1 crore.
– Choose only pure term insurance.
– Do not take ULIPs or endowment policies.
– They give low returns and high costs.
– If you already have such products, you may consider surrendering.
– Reinvest that amount in mutual funds.

– Also buy family floater health insurance.
– You, your wife and daughter should be covered.
– Minimum Rs.5 lakhs coverage.
– Health costs rise every year.

? Education and Marriage Planning for Daughter

These are big goals. But they are long-term, so time is your friend.

Education Planning:

– Higher education needs large funds.
– Start a separate SIP of Rs.5000 per month.
– Use equity mutual funds.
– Review every year and increase SIP.
– Don’t touch this investment for any other need.

Marriage Planning:

– This is 20+ years away.
– You can use lumpsum investments here.
– The Rs.2 lakhs you saved can be for this.
– Also, build this goal slowly after education fund is stable.

Do not mix marriage and education planning.
Treat them as two different goals.

? Building Assets for Financial Stability

You currently do not have any physical assets. That’s not a problem.

Focus on building financial assets.

– Mutual funds are liquid and can grow well.
– EPFO adds stability and long-term safety.
– Emergency fund ensures peace of mind.
– Term insurance covers family needs.
– Health insurance protects savings.

Stick to these. Do not get distracted by gold or real estate.

Real estate has low liquidity and high maintenance.
Also, resale or rental is not easy and returns are uncertain.

? Why You Should Avoid Index Funds

Index funds may look cheap. But they have limitations.

– They only copy the market index like Nifty.
– They don’t outperform the market.
– In falling markets, they fall fully.
– No active fund manager to manage risk.
– Inflation can beat index fund returns.

On the other hand:

– Actively managed funds have experienced managers.
– They reduce exposure to weak sectors.
– They increase exposure to strong sectors.
– Over long term, they create better value.

Always go with active mutual funds through a CFP-led advisor.
They help you rebalance and stay on track.

? Why Direct Mutual Funds Are Not Ideal

Direct funds have low expense ratio. But they lack guidance.

– No help with fund selection.
– No review or rebalancing support.
– No risk profiling.
– No hand-holding during market falls.

Investors often panic or stay emotional.
This hurts long-term returns.

On the other hand:

– Regular plans give guidance.
– Through Certified Financial Planner, you get yearly reviews.
– You get portfolio alignment based on goals.
– Mistakes are avoided.

The slightly higher cost is worth the value it brings.
Long-term discipline beats small cost difference.

? What To Review Every Year

Every year, review these points:

– SIP amount and growth
– Fund performance
– Daughter’s goal progress
– Retirement corpus projection
– Changes in income or expenses
– New responsibilities or medical needs
– Emergency fund adequacy

Your planner can guide this review well.
This ensures all your goals stay on track.

? Finally

You are doing very well for your stage in life.

– You have no loans.
– You are disciplined in savings.
– You are planning for your daughter.
– You are thinking of retirement.

This mindset will help you build wealth peacefully.

Follow these steps:

– Stay invested for long term.
– Don’t chase returns.
– Review yearly.
– Invest goal-wise.
– Increase SIPs as income grows.
– Avoid distractions like gold and real estate.
– Avoid mixing insurance and investment.
– Take professional help where needed.

With this, you can confidently build your financial future.

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

...Read more

Ramalingam

Ramalingam Kalirajan  |9736 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 15, 2025

Money
Sirji I had claimed 54 F last financial year ie 2023-24 of Rs. 74,58,474 shares sold on 10/08/2023 flat purchased on 25/08/2023 I purchased another flat in FY 2024-25 on 18/11/2024 . since i have purchased another flat ( on 18/11/2024 ) within TWO years of sale of original asset ( sold on 10/08/2023) Undertsand that the LTCG caimed in last fy 23-24 of rs 74.58 lacs will be disallowed and added back to fy 24-25 income QUERRY - Since the sale of shares transaction took place before 23 july 2024 ( on 10/08/2023) will I be taxed at 10 % LTCG tax ?? Or at 12.50 % since the condition was broken on 18/11/2024( after 23 rd July 2024) Regards Narayanan
Ans: ? Your Transaction in Brief

– You sold listed shares on 10th August 2023.
– You claimed exemption under capital gains against purchase of a flat on 25th August 2023.
– You have now bought another flat on 18th November 2024.
– You are aware this may disallow the earlier exemption of Rs. 74.58 lakhs.
– You are rightly asking if tax will be 10% or 12.5%.

This is a very thoughtful and forward-looking question. Let’s decode it point by point.

? When is the Exemption Reversed?

– Capital gains exemption is condition-based.
– One such condition is – you should not buy another residential flat within 2 years.
– You violated this condition on 18th November 2024.
– So, the exemption taken earlier gets reversed.
– The amount of Rs. 74.58 lakhs becomes taxable again.
– This reversal happens in the financial year when condition is broken.
– So, this income will be added back in FY 2024-25.

? Which Tax Rate Will Apply on this Reversed LTCG?

– You sold shares in August 2023, that is before 23rd July 2024.
– This date is very important for taxation rules.
– The new LTCG rate of 12.5% is applicable only for transactions on or after 23rd July 2024.
– Your original transaction happened before this cut-off.
– Hence, the older LTCG tax rule of 10% applies in your case.

So, even though the exemption is reversed now, tax rate remains at 10%.
This is because the transaction date is the deciding factor.
Not the date of exemption being withdrawn.
So your understanding is correct, and that’s appreciated.

? Should You Worry About Indexation or STCG?

– No. Since shares were held for more than 1 year, it is clearly LTCG.
– Short-term capital gain rules will not apply here.
– Also, no indexation benefit is available for equity shares.
– But 10% rate on LTCG above Rs. 1 lakh is fair and reasonable.

? How Will This Affect FY 2024-25 Tax Filing?

– The Rs. 74.58 lakhs will now show as LTCG income in FY 2024-25.
– You should report this under capital gains section in ITR.
– Pay advance tax on this if not yet paid.
– Otherwise, you may end up paying interest under sections 234B and 234C.
– Please coordinate with your Chartered Accountant for the tax filing part.

This is important to keep your records clean and avoid scrutiny.

? Will This Impact Your Overall Financial Goals?

– A one-time tax outgo of 10% on Rs. 74.58 lakhs = approx. Rs. 7.45 lakhs.
– If you had planned this well, it can be absorbed easily.
– But if not planned, it could dent liquidity.
– You should relook at your emergency corpus and contingency planning.
– A Certified Financial Planner can help rebalance your goals accordingly.

? Why This Tax Rule Exists – An Insight

– The law allows you to reinvest LTCG into one residential flat.
– This benefit is to encourage home buying, not to speculate.
– That’s why, buying another home within 2 years is seen as a misuse.
– So exemption is withdrawn and LTCG is added back.
– This keeps the rule balanced and fair for all taxpayers.

? Should You Surrender Insurance Policies if Any?

– If you have ULIPs or traditional LIC policies with investment tag, please review.
– These give very low return and poor flexibility.
– If they are more than 5 years old, you may surrender them.
– Reinvest those amounts in mutual funds through a MFD-CFP route.
– That can give you better return, liquidity and transparency.

? Why Not to Go for Direct Mutual Funds?

– Direct funds look cheap, but they come with risks.
– No guidance, no risk-mapping, no goal alignment.
– They expose you to poor fund selection and wrong SIP allocation.
– MFD with CFP gives handholding and better fund filtration.
– Also, regular plans have built-in advisory value.
– This cost is worth paying for financial peace.

? Why Index Funds Are Not the Best Route

– Index funds are passive. They just follow market trend.
– They don’t outperform or give alpha returns.
– In volatile or falling markets, they give poor protection.
– They don’t adapt to sectoral changes or economic cycles.
– Actively managed funds adjust portfolio as per market moves.
– They have research backing, fund manager intelligence, and alpha generation.

In your case, where capital gains are involved, risk-managed returns are key.
So actively managed funds through regular route is more suitable.

? How to Absorb This LTCG Tax Impact

– Start an SIP-based STP to gradually invest surplus in balanced mutual funds.
– Create a buffer fund equal to 6 months’ living expenses.
– Maintain a separate fund for LTCG tax impact of Rs. 7.45 lakhs.
– Don't keep it in equity or risky instruments.
– Use ultra-short or low duration fund for this.

? Tax Planning Insight for You Going Ahead

– Before taking exemption, always review lock-in and restriction period.
– Never buy second property within 2 years unless you're ready to pay tax.
– Document all property purchases and sales in a simple Excel sheet.
– Keep timelines and lock-in periods marked.
– This avoids surprises and ensures smooth tax planning.

Also, keep your CA and Certified Financial Planner in sync.
They must work as a team for your financial health.

? What Could Have Been Done Differently

– You could have waited beyond 2 years to buy second property.
– Or, you could have avoided claiming exemption initially.
– Then invested gains in active mutual funds and booked 10% tax.
– This could have kept your financial strategy more flexible.
– But yes, past cannot be changed. Let’s focus ahead.

You still have ample time to plan FY 2024-25 tax outflow.
You’ve also gained clarity from this experience. That itself is an asset.

? What Should Be Your Next Steps

– Set aside Rs. 7.45 lakhs for LTCG tax.
– Inform your CA in advance for FY 2024-25 tax projection.
– Avoid buying another residential property again for next few years.
– Reassess your long-term asset allocation.
– Avoid ULIPs, traditional LICs, direct funds and index funds.
– Stay focused on goal-based MF portfolio managed via MFD with CFP.

? Finally

You are thinking ahead and keeping track of taxation. That is highly appreciated.
You have acted with good intent. The tax law has its own constraints.
But this clarity now gives you the power to act wisely.
Take a few right steps today, and you can still stay fully on track.
Please don’t panic. The 10% rate is a relief in this scenario.
Keep your documents clean and your CA informed.

For your long-term wealth journey, stay with a Certified Financial Planner.
They will help you stay aligned to your goals, taxes and peace of mind.

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.

Close  

You haven't logged in yet. To ask a question, Please Log in below
Login

A verification OTP will be sent to this
Mobile Number / Email

Enter OTP
A 6 digit code has been sent to

Resend OTP in120seconds

Dear User, You have not registered yet. Please register by filling the fields below to get expert answers from our Gurus
Sign up

By signing up, you agree to our
Terms & Conditions and Privacy Policy

Already have an account?

Enter OTP
A 6 digit code has been sent to Mobile

Resend OTP in120seconds

x