Confused Reader Seeks to Understand Mutual Funds and SWPs

Ans: Harikrishnan. I appreciate your attention to detail and your valid insights on your corpus sustainability. You’ve outlined a practical viewpoint, and I’ll clarify the reasoning behind my previous assessment and address the key aspects you’ve highlighted.

Corpus Longevity and SWP Analysis
Firstly, you’re absolutely correct in noting that even after accounting for major expenses, such as Rs 30 lakhs for your son’s marriage and market fluctuations, your remaining corpus of approximately Rs 1.4 crore is substantial. You’ve also correctly identified that compounding growth can help cover future inflation to a significant extent. Let’s break down the factors that contribute to sustainable withdrawals.

1. SWP for Minimal Lifestyle Disruption
The current SWP of Rs 3.6 lakhs annually is conservative, as you noted. Based on an Rs 1.4 crore corpus, this SWP rate is just over 2.5% per annum.

Given that a balanced mutual fund portfolio can reasonably achieve an annual return of 8-10% over the long term, this withdrawal rate would generally be sustainable and even allow for periodic adjustments.

Your plan is indeed realistic: this SWP rate should comfortably support you for 25-30 years, assuming market performance aligns with historical averages.

2. Compounding Growth vs. Inflation Impact
While your corpus is likely to grow through compounding, inflation will increase living expenses, especially over a 25-30 year horizon.

Inflation Rate Impact: With inflation potentially averaging 5-6% annually, your expenses may double or more in the next 20 years.

Balancing SWP and Corpus Growth: By starting with a conservative SWP rate, you allow more of your corpus to grow during the early years, creating a cushion for potential increases in withdrawals as expenses rise over time.

3. Adjusting the SWP Gradually
Reducing or adjusting your SWP isn’t mandatory at this stage but is a potential strategy to keep as a contingency. If you’re comfortable with the current withdrawal rate and your portfolio growth continues positively, there’s no immediate need to reduce the SWP.

Emergency Fund Consideration
Setting aside a portion of your corpus in a liquid fund for emergency needs is also a wise approach, as you mentioned. This reserve can cover any unexpected expenses without disrupting your SWP withdrawals.

Recommendation: Consider earmarking a portion (such as 6-12 months of expenses) in a highly liquid, low-risk instrument. This step not only provides financial flexibility but also shields your main corpus from frequent withdrawals due to emergencies.
Final Insights
You’ve clearly thought through the sustainability of your corpus and SWP, and your assumptions are practical and reasonable. As long as your portfolio maintains a balanced asset allocation, your current withdrawal rate should support your lifestyle and provide room for future inflationary adjustments.

Your understanding of using compounding growth to counter inflation is sound, and your strategy of relying on a conservative SWP aligned with portfolio growth should help meet your retirement goals with minimal disruption.

Thank you for allowing me to clarify these points, Harikrishnan. Your plan is well-thought-out, and with continued monitoring, you’re on track for a secure retirement.

Best Regards,
K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment