40-Year-Old Seeks Investment Advice with Nearing NCD Maturity

Ans: at 40, you’ve built a strong corpus of Rs 3 crore. That’s a solid achievement. It’s great to see you have a diversified portfolio. With Rs 93 lakh in ICICI Aggressive Hybrid Fund and Rs 93 lakh in HDFC Flexi Cap Fund, you're well-positioned in mutual funds.

You also have Rs 14 lakh in a 7% interest savings account, giving you liquidity. On top of that, Rs 100 lakh in NCDs provides Rs 80,000 in monthly interest income.

Your monthly expenses of Rs 1.5 lakh, including health insurance premiums, are significant. Right now, your NCD income covers Rs 80,000, while the rest is met through withdrawals from your savings account. But it’s good that you’re planning for post-2025 when your NCD matures. Let’s map out a strategy for that phase.

Let’s address your financial priorities with a clear plan.

Current Income and Expense Management
Monthly Income from NCDs: Rs 80,000 from NCDs covers over half of your expenses. This is a reliable income stream until December 2025.

Remaining Expenses from Savings: Rs 70,000 per month is being withdrawn from your Rs 14 lakh savings. This could strain your liquid savings over time. However, it’s a practical short-term solution.

While this works for now, you’ll need to restructure after the NCDs mature.

Post-NCD Maturity Plan – December 2025
Once your NCDs mature, you’ll have Rs 1 crore back. Your question is whether to park Rs 40 lakh into a savings account for two years of expenses and allocate the remaining into your mutual funds. Let’s evaluate this plan.

Liquidity Consideration: Keeping Rs 40 lakh for two years of expenses is a safe move. It ensures that you have a buffer, and you won’t need to sell your mutual funds or take on debt for any emergency or monthly needs.

Mutual Fund Allocation: Placing the remaining Rs 60 lakh into your existing mutual funds makes sense. Both ICICI Aggressive Hybrid and HDFC Flexi Cap have performed well. However, it’s important to stay diversified between equity and debt for stability.

Instead of just these two funds, consider gradually allocating to some conservative hybrid funds or balanced advantage funds. These offer the potential for decent returns with lower volatility.

Systematic Withdrawal Plan (SWP)
A SWP can provide a stable income stream. You’re considering starting this 2 years after NCD maturity. That’s a wise approach because you will allow your mutual funds to grow while drawing from your Rs 40 lakh cash reserves for expenses.

Here’s why a SWP is useful:

Stable Monthly Income: It allows you to receive regular income without depleting your corpus rapidly.
Tax Efficiency: Long-term capital gains taxation applies to withdrawals from equity-oriented mutual funds. This is more tax-efficient than interest from traditional savings accounts.
Your proposed plan of using savings for two years and starting SWP after is practical. It will also give your investments more time to compound, which is critical for long-term wealth building.

Investment Strategy for Long-Term Growth
After NCD maturity, Rs 60 lakh is a significant amount. To avoid concentrating too much risk in two funds, consider a broader mix of funds:

Diversification in Asset Classes: Adding some conservative hybrid or balanced advantage funds will help balance equity risk while still offering growth potential. These funds adjust their equity exposure based on market conditions, which can safeguard your corpus during volatility.

Debt Allocation: You could allocate a portion of your funds to debt funds for stability. Debt funds, especially in this current interest rate environment, can offer safer returns than holding large amounts in savings accounts.

Tax Considerations
The new capital gains taxation rules are something you should consider while planning your withdrawals and reallocation:

Equity Mutual Funds: Long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%. If you plan to sell your mutual fund units for SWP or other needs, be mindful of this limit. Also, any short-term capital gains (STCG) are taxed at 20%.

Debt Mutual Funds: LTCG and STCG are taxed as per your income tax slab, which can be higher. Hence, for your debt allocation, it might make sense to consider options that are tax-efficient or more conservative funds that offer better post-tax returns.

A certified financial planner can guide you further in structuring your portfolio to optimize taxes and liquidity.

Emergency Fund and Health Coverage
Building an Emergency Fund: While Rs 14 lakh is in your savings account right now, after two years of expenses are taken care of, ensure you maintain an emergency fund worth at least 6-12 months of expenses. You don’t want to touch your mutual fund investments for emergency needs.

Health Insurance: It’s good to see you’re accounting for health insurance in your monthly expenses. Keep reviewing your health insurance coverage periodically to ensure it’s adequate, given rising healthcare costs.

Portfolio Rebalancing and Monitoring
It’s important to periodically rebalance your portfolio. When the Rs 60 lakh is invested in mutual funds, ensure that you’re not overexposed to any one fund or asset class.

Equity vs Debt Mix: Given that you are in your 40s, you can maintain a healthy exposure to equity funds for growth. However, ensure that you have at least 30-40% in debt or hybrid funds for stability.

Regular Monitoring: Mutual funds need regular reviews. Keep an eye on performance, but avoid making decisions based on short-term market movements. Look at long-term performance trends. A certified financial planner can help you track this efficiently.

Next Steps for Your Financial Plan
Here’s a structured plan:

Continue with your current income strategy until the NCD matures.

Post-NCD Maturity:

Keep Rs 40 lakh aside in a savings account for two years of expenses.
Reinvest Rs 60 lakh into mutual funds, diversifying across equity, hybrid, and debt funds.
Start a Systematic Withdrawal Plan (SWP) after 2 years, ensuring a stable income stream. Adjust your withdrawal amounts based on market performance and inflation.

Maintain an emergency fund of at least Rs 15-20 lakh to cover unforeseen needs.

Review your portfolio annually with the help of a certified financial planner to ensure it aligns with your changing needs and market conditions.

Consider Taxation: Keep in mind the new mutual fund capital gains taxation rules when planning withdrawals or rebalancing.

Ensure Health Coverage: Review and update your health insurance to match rising medical costs.

Finally
Sir, you’ve built a strong financial foundation. With thoughtful planning, you can ensure that your wealth lasts and grows. By setting aside funds for immediate needs and investing the rest wisely, you’ll enjoy a comfortable future without stress. Start by diversifying your mutual fund investments, preparing for SWP, and keeping enough liquidity for expenses.

Always review your strategy with a certified financial planner. That way, your financial plan remains aligned with your goals.

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