I want a fixed income monthly of 1L from a corpus of 1cr. Please guide

Ans: Achieving a fixed monthly income of Rs 1 lakh from a corpus of Rs 1 crore is a challenging yet attainable goal. This requires a strategic investment approach that balances risk and returns while ensuring capital preservation. Let’s explore how you can achieve this objective.

Understanding Your Financial Needs
Your goal is to generate a fixed monthly income of Rs 1 lakh from a corpus of Rs 1 crore. This translates to an annual requirement of Rs 12 lakh, or 12% of your corpus. Achieving this requires a well-thought-out plan that leverages different investment instruments.

Investment Options for Fixed Income
Systematic Withdrawal Plan (SWP)
An SWP from mutual funds can help generate a regular income. You can invest in a mix of equity and debt mutual funds to balance risk and returns. SWP allows you to withdraw a fixed amount regularly, providing a steady income stream.

Debt Mutual Funds
Debt mutual funds invest in fixed-income securities like bonds and government securities. They offer moderate returns with lower risk compared to equity funds. A portion of your corpus can be invested in debt funds to ensure stability.

Hybrid Mutual Funds
Hybrid funds invest in both equity and debt instruments. They provide a balance of growth and stability, making them suitable for generating regular income. These funds can offer higher returns compared to pure debt funds with moderate risk.

Fixed Deposits (FDs)
Fixed deposits are low-risk investment options that provide guaranteed returns. While the returns are lower compared to mutual funds, FDs offer stability. A portion of your corpus can be parked in FDs for assured returns.

Monthly Income Schemes (MIS)
Post Office Monthly Income Scheme (POMIS) offers a fixed monthly income with relatively low risk. The returns are guaranteed, making it a safe investment option for fixed income.

Creating a Diversified Portfolio
Diversification is key to balancing risk and returns. Here’s a suggested portfolio allocation to achieve your fixed income goal:

Equity Mutual Funds: 30%
Investing in equity mutual funds provides growth potential. Over the long term, equity funds can offer returns of 10-12% per annum. This growth can help in offsetting inflation and increasing your corpus.

Debt Mutual Funds: 40%
Debt funds provide stability and moderate returns. With an average return of 6-8% per annum, they help in preserving the capital while generating income.

Hybrid Mutual Funds: 20%
Hybrid funds balance growth and stability. With a mix of equity and debt, they offer moderate risk and return, making them suitable for generating regular income.

Fixed Deposits and MIS: 10%
Investing in FDs and MIS ensures guaranteed returns. This portion of the portfolio provides a safety net and assures a fixed income.

Calculating Monthly Withdrawal
To achieve a monthly income of Rs 1 lakh, you need to strategically withdraw from your investments. Here’s how you can do it:

From Equity and Hybrid Funds
Withdraw a portion of your returns while leaving the principal amount to grow. This ensures the corpus continues to generate returns.

From Debt Funds and FDs
Withdraw the interest earned while keeping the principal intact. This approach ensures steady income without depleting the corpus.

Tax Implications
Understanding the tax implications of your withdrawals is crucial. Here’s what you need to know:

Short-Term Capital Gains (STCG)
For equity mutual funds, STCG (holding period less than one year) is taxed at 15%. For debt funds, the gains are added to your income and taxed as per your slab rate.

Long-Term Capital Gains (LTCG)
For equity funds, LTCG (holding period more than one year) up to Rs 1 lakh is tax-free. Gains above Rs 1 lakh are taxed at 10% without indexation. For debt funds, LTCG (holding period more than three years) is taxed at 20% with indexation benefits.

Interest Income
Interest from FDs and MIS is fully taxable as per your income slab. Plan your investments considering the tax impact to maximize net returns.

Monitoring and Adjusting the Portfolio
Regular monitoring and adjustment of your portfolio are essential. Market conditions, personal financial situations, and investment goals can change. Reviewing your portfolio annually ensures it remains aligned with your goals.

Emergency Fund
While planning for fixed income, maintaining an emergency fund is crucial. This fund should cover 6-12 months of your living expenses. It provides a financial cushion in case of unexpected events and prevents the need to dip into your long-term investments.

Inflation Consideration
Inflation erodes the purchasing power of money over time. Ensure your portfolio returns are above the inflation rate to maintain the value of your income. Investing in instruments that offer returns higher than inflation is essential.

Role of a Certified Financial Planner
A Certified Financial Planner (CFP) can provide valuable guidance in selecting the right investment strategy. They offer personalized advice based on your financial goals, risk tolerance, and investment horizon.

Benefits of Actively Managed Funds
Actively managed funds involve professional fund managers making investment decisions. These managers aim to outperform the market indices by selecting high-performing stocks. Although they come with higher expense ratios, the potential for higher returns justifies the cost.

Disadvantages of Index Funds
Index funds passively track market indices and aim to replicate their performance. While they have lower expense ratios, they cannot outperform the market. Actively managed funds, on the other hand, have the potential to generate higher returns through strategic stock selection.

Importance of Regular Funds
Investing through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) credential provides professional guidance. Regular funds involve a slightly higher expense ratio but offer personalized advice, portfolio review, and rebalancing services.

Risk Management
Managing risk is crucial to ensure steady income. Here are some risk management strategies:

Diversification
Diversify your investments across asset classes to spread risk. This ensures that poor performance in one asset class does not significantly impact your overall returns.

Regular Review
Regularly review your investment portfolio to make necessary adjustments. This helps in staying aligned with your financial goals and market conditions.

Rebalancing
Rebalance your portfolio periodically to maintain the desired asset allocation. This involves selling high-performing assets and reinvesting in underperforming ones.

Retirement Planning
Fixed income is crucial for retirement planning. An SWP provides a steady income stream while allowing your corpus to grow. Combining SWP with other retirement tools like PPF and EPF ensures a comfortable retirement.

Setting Realistic Expectations
Setting realistic expectations is essential to avoid financial stress. While aiming for Rs 1 lakh monthly income, ensure it is sustainable. Withdraw only the amount you need and avoid depleting your corpus quickly.

Investing in Knowledge
Understanding financial markets and investment principles empowers you to make informed decisions. Attend financial literacy programs and stay updated with market trends. Knowledge is a powerful tool in achieving your financial goals.

Conclusion
Achieving a fixed monthly income of Rs 1 lakh from a corpus of Rs 1 crore is attainable with a strategic investment approach. Focus on creating a diversified portfolio with a mix of equity, debt, and hybrid funds. Use Systematic Withdrawal Plans (SWP) to ensure steady income while preserving your capital. Regularly review and adjust your portfolio with the help of a Certified Financial Planner. Stay disciplined and informed to navigate your financial journey successfully.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in