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Which is the Best Performing SWP in India for a 35-Year-Old?

Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 06, 2025

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
HEMRAJ Question by HEMRAJ on Dec 30, 2024Hindi
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Namaskar Sir, Can you suggest me best performing SWP in India.

Ans: An SWP allows you to withdraw a fixed amount regularly from your mutual fund investments. It provides steady cash flow and helps manage expenses while keeping your investments intact.

It is ideal for retired individuals seeking income or those looking for periodic liquidity without disturbing their long-term portfolio.

You can customise the withdrawal frequency—monthly, quarterly, or annually.

Key Factors for Selecting an SWP

Investment Objective Alignment
Choose funds that match your goals, such as regular income or wealth preservation.

Fund Performance
Pick funds with a consistent track record across various market conditions.

Expense Ratio
Opt for funds with a moderate expense ratio to maximise your returns.

Tax Efficiency
Withdrawals are treated as redemptions and taxed accordingly. Choose funds that minimise tax liability.

Asset Allocation
Maintain a balanced portfolio by diversifying across equity, debt, and hybrid funds.

SWP and Actively Managed Funds

Actively managed funds often outperform in volatile markets. Fund managers can adjust allocations to deliver better returns.

Actively managed funds offer better opportunities for growth compared to index funds. Index funds follow market indices and lack active intervention to reduce risks.

Regular Funds Over Direct Funds

Investing through a Certified Financial Planner adds value. Regular funds offer guidance, helping you choose the right options.

Direct funds lack professional advice. This could lead to poor decisions and misalignment with your goals.

Creating an Effective SWP

Start With a Core Portfolio
Invest in stable, well-performing funds to ensure consistent income.

Set a Realistic Withdrawal Rate
Withdraw an amount that doesn’t deplete your investment too quickly.

Review Periodically
Monitor fund performance and make adjustments based on your financial needs.

Supplement With Growth Investments
Invest part of your portfolio in equity or hybrid funds for growth potential.

Understanding Tax Implications

For equity funds, LTCG above Rs 1.25 lakh is taxed at 12.5%.
STCG is taxed at 20%.
For debt funds, gains are taxed as per your income tax slab.
Choose funds wisely to manage tax impact.

Final Insights

An SWP provides both income and capital preservation when planned correctly. Align your SWP with your financial goals and risk tolerance. Seek professional advice for fund selection and tax optimisation.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
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  |8182 Answers  |Ask -

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

Money
Can you suggest me a good SWP advisor?
Ans: Understanding Systematic Withdrawal Plans (SWP)
A Systematic Withdrawal Plan (SWP) allows investors to withdraw a fixed amount regularly from their mutual fund investments. It offers a steady income stream, making it an excellent option for retirees or anyone seeking regular income.

The Basics of SWP
An SWP works by redeeming a specific number of units from your mutual fund investment at regular intervals. The withdrawn amount is credited to your bank account, providing a steady cash flow.

The main advantage of an SWP is the ability to customize the withdrawal amount and frequency. This makes it flexible and adaptable to your financial needs.

Benefits of SWP
Regular Income Stream
SWP provides a regular income stream, which can be monthly, quarterly, or annually. This is beneficial for those who need consistent cash flow to meet their expenses.

Tax Efficiency
SWP is more tax-efficient compared to traditional income options like fixed deposits. Only the gains portion of the withdrawal is taxed, and long-term capital gains (after three years) are taxed at a lower rate.

Control Over Investments
You retain control over your investments while using an SWP. Unlike annuities, where you might lose control of your principal, an SWP allows you to modify or stop withdrawals as needed.

Rupee Cost Averaging
By redeeming units at regular intervals, SWP helps in averaging the cost of investment. This can be beneficial in volatile markets.

Capital Appreciation
Even though you are withdrawing regularly, the remaining investment continues to grow, providing capital appreciation. This can help in preserving the corpus over the long term.

Selecting the Right Mutual Fund for SWP
Choosing the right mutual fund for SWP is crucial. Here are some factors to consider:

Fund Performance
Select a fund with a consistent track record of performance. Look for funds that have delivered stable returns over different market cycles.

Fund Type
Equity funds, debt funds, and hybrid funds can all be used for SWP. Your choice depends on your risk tolerance and return expectations.

Expense Ratio
Lower expense ratios mean higher returns for investors. Choose funds with competitive expense ratios to maximize your returns.

Fund Manager's Expertise
The expertise of the fund manager plays a vital role in the fund's performance. Choose funds managed by experienced and reputable fund managers.

SWP Strategies
Conservative Strategy
For a conservative approach, consider investing in debt mutual funds. These funds invest in fixed-income securities like bonds and government securities, providing stability and moderate returns.

Debt funds are less volatile than equity funds, making them suitable for risk-averse investors.

Balanced Strategy
A balanced strategy involves investing in hybrid funds. These funds invest in both equity and debt instruments, providing a balance of growth and stability.

Hybrid funds offer moderate risk and return, making them suitable for investors seeking a balanced approach.

Aggressive Strategy
For an aggressive approach, consider equity mutual funds. These funds invest in stocks and have the potential for higher returns. However, they come with higher risk due to market volatility.

An aggressive strategy is suitable for investors with a higher risk tolerance and a long-term investment horizon.

Calculating SWP Amount
Determining the right SWP amount is essential to ensure that your corpus lasts longer. Here's how to calculate it:

Estimate Monthly Expenses
Start by estimating your monthly expenses. This gives you a clear idea of how much you need to withdraw regularly.

Consider Inflation
Inflation erodes the purchasing power of money over time. Factor in an inflation rate of 5-6% per annum to ensure your withdrawals are sufficient in the future.

Corpus Size
Consider the size of your investment corpus. A larger corpus allows for higher withdrawals without depleting the principal quickly.

Expected Return
Estimate the expected return from your investment. This helps in determining how long your corpus will last with regular withdrawals.

Example of SWP Calculation
Let's assume you have an investment corpus of Rs 20 lakh in a mutual fund that offers an average return of 10% per annum. If you need to withdraw Rs 20,000 monthly, here's how the calculation works:

Monthly withdrawal: Rs 20,000
Annual withdrawal: Rs 2,40,000
Expected annual return: 10% of Rs 20 lakh = Rs 2 lakh
In this scenario, you are withdrawing Rs 2.4 lakh annually while your investment is generating Rs 2 lakh. The deficit of Rs 40,000 will be covered by redeeming units from your corpus. Over time, if the returns remain consistent, your corpus will last longer.

Tax Implications of SWP
Understanding the tax implications of SWP is crucial. Here's what you need to know:

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

Long-Term Capital Gains (LTCG)
For equity mutual funds, LTCG (holding period over 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 over three years) is taxed at 20% with indexation benefits.

Reviewing and Adjusting SWP
Regular review and adjustment of your SWP are essential. Market conditions, personal financial situations, and investment goals can change. Reviewing your SWP annually ensures that it remains aligned with your needs.

Emergency Fund
While planning for SWP, 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.

Retirement Planning
SWP is an excellent tool for retirement planning. It 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 SWP offers regular income, the amount should be sustainable. Withdraw only the amount you need and avoid depleting your corpus quickly.

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

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.

Advantages 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.

Conclusion
A Systematic Withdrawal Plan (SWP) is a versatile and effective tool for generating regular income from your investments. By selecting the right mutual fund, calculating the appropriate withdrawal amount, and understanding the tax implications, you can ensure a steady and tax-efficient income stream. Regularly reviewing and adjusting your SWP with the help of a Certified Financial Planner ensures that it remains aligned with your financial goals and market conditions. Stay informed and disciplined to navigate your financial journey successfully.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 03, 2025

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Dear Sir, I am 47 years old IT professional. My current salary is 1.5 lakhs per month. I have a daughter who just completed her 10th board exam. My corpus is around 1.6Cr FD&PPF; 30 lakhs in MF & stocks; 50 lakhs in EPF. I have no debt and living in my own house. Please suggest if I can plan for retirement
Ans: Your financial position is strong, and planning for retirement at 47 is a smart decision. Below is a detailed 360-degree approach to assess whether you can retire comfortably and how to ensure financial security.

Understanding Your Current Financial Position
Income: Rs 1.5 lakh per month.

Corpus:

Rs 1.6 crore in Fixed Deposits (FD) and Public Provident Fund (PPF).

Rs 30 lakh in mutual funds and stocks.

Rs 50 lakh in Employees' Provident Fund (EPF).

Liabilities: No debts.

Assets: Own house, ensuring no rent or EMI burden.

Family Responsibility:

Daughter has just completed the 10th board exam.

Higher education expenses need to be planned.

Key Considerations Before Retirement
Expected Retirement Age

If you plan to retire early (before 55), corpus sustainability needs careful assessment.

If you work till 60, it will provide a larger financial cushion.

Post-Retirement Expenses

Living expenses, healthcare, travel, and lifestyle costs must be considered.

Inflation will increase future expenses.

Daughter’s Education

Higher education costs are significant.

Corpus should cover both education and retirement without compromise.

Medical Expenses

Health costs increase with age.

A high health insurance cover is essential.

Wealth Growth vs. Safety

A mix of equity and debt investments ensures growth while preserving capital.

Excessive reliance on FDs and PPF may limit long-term wealth accumulation.

Assessing If You Can Retire Comfortably
Current Corpus Size

Rs 2.4 crore (excluding house) is a strong starting point.

But, inflation will reduce its real value over time.

Expected Corpus Growth

Investments in mutual funds and stocks should continue to grow.

PPF and EPF offer stable but lower returns.

Withdrawals Post-Retirement

Sustainable withdrawals should not deplete the corpus too soon.

A balanced investment strategy is required.

Gaps in Planning

Heavy reliance on FDs and PPF may not be ideal.

More equity exposure can ensure inflation-beating returns.

Steps to Strengthen Your Retirement Plan
1. Optimising Investment Strategy
Continue investing in mutual funds with a mix of large-cap, mid-cap, and flexi-cap funds.

Reduce dependence on FDs for long-term needs.

Equity mutual funds help counter inflation and grow wealth.

Avoid index funds as they provide average returns without active management.

Regular funds through a Certified Financial Planner (CFP) offer expert monitoring.

Diversify investments between equity, debt, and fixed-income products.

2. Planning for Daughter’s Education
Higher education costs can be Rs 30-50 lakh in the next 5-7 years.

Separate this goal from your retirement plan.

Increase equity investment to build an education corpus.

Avoid withdrawing from retirement savings for education.

3. Building a Healthcare Safety Net
Health insurance should cover at least Rs 30-50 lakh.

Consider super top-up plans for additional coverage.

Maintain an emergency medical fund to cover non-insured expenses.

Review insurance policies periodically.

4. Creating a Sustainable Withdrawal Plan
Avoid withdrawing a large portion of the corpus in early retirement years.

Keep at least 5 years of expenses in liquid assets.

Equity exposure should reduce gradually as retirement progresses.

Use dividends and interest income before selling assets.

Final Insights
Retirement is possible, but adjustments are needed for long-term security.

Continue investing aggressively for the next few years.

Ensure daughter's education is planned separately.

Review investments and insurance regularly.

Keep flexibility in withdrawal strategy post-retirement.

A structured plan will ensure a financially secure and comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 03, 2025

Asked by Anonymous - Apr 03, 2025Hindi
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My employer offers a salary sacrifice scheme for pension contributions, but I don't fully understand how it works. What are the potential advantages and disadvantages of joining such a scheme, and how does it affect my take-home pay and long-term financial planning?
Ans: A salary sacrifice scheme for pension contributions allows you to give up a portion of your salary in exchange for increased employer contributions to your pension. It has tax and National Insurance (NI) advantages but also some potential drawbacks.

How Salary Sacrifice for Pension Works
You agree to reduce your gross salary by a chosen amount.

Your employer contributes this amount directly to your pension.

Since your taxable salary is lower, you pay less income tax and NI.

Your employer also saves on NI and may pass on some or all of this saving to your pension.

Advantages
1. Tax and NI Savings
You don’t pay income tax or NI on the sacrificed amount.

Your employer saves on NI (currently 13.8%) and may increase your pension with these savings.

2. Higher Pension Contributions
Since more money goes into your pension, your retirement corpus grows faster.

Compounding over time enhances long-term wealth.

3. Increased Take-Home Pay
Although you sacrifice part of your salary, the NI savings may offset some of the reduction.

Depending on employer policies, your net pay may not drop significantly.

4. Potential Employer Matching
Some employers pass their NI savings into your pension, increasing your total contributions.

Disadvantages
1. Reduced Gross Salary
A lower salary means reduced future pay rises if they are percentage-based.

Life cover, sick pay, and redundancy pay linked to salary may be affected.

2. Lower Borrowing Capacity
Mortgage applications consider salary; a lower reported income might reduce borrowing potential.

3. Impact on State Benefits
If salary drops below certain thresholds, statutory benefits like maternity pay and state pension could be affected.

4. Restricted Access to Pension
The extra pension savings cannot be accessed before retirement (except under specific conditions).

Effect on Take-Home Pay
Your net pay will be slightly lower, but less than the actual amount sacrificed.

The tax and NI savings cushion the impact.

If your employer adds their NI savings, your total retirement savings increase.

Effect on Long-Term Financial Planning
Your pension fund grows faster, improving retirement security.

Short-term disposable income is slightly reduced, so budget planning is important.

Consider how the reduced salary affects other financial goals like buying a house or saving for education.

Should You Opt for It?
If employer NI savings are passed to your pension, it’s highly beneficial.

If you are close to lower tax bands or state benefit thresholds, assess the impact.

If you plan to apply for a mortgage, check how it affects your eligibility.

A Certified Financial Planner (CFP) can help assess your personal situation before making a decision.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 03, 2025

Asked by Anonymous - Apr 03, 2025Hindi
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Hi Sir , Greetings of the day!! hope you are doing well !! I want to do a savings of 50 lacs in as much less time span as possible because I want to buy a property in Gurgaon. My monthly salary is 1 lac 11k and I am currently investing 10k in mutual fund monthly and 50k in nps yearly. Can you please guide me how can I save 50 lacs and in how much time ?
Ans: Your goal of saving Rs 50 lakh for a property in Gurgaon is ambitious but achievable with the right strategy. Below is a structured approach to help you reach your target in the shortest possible time.

Understanding Your Current Financial Position
Your monthly salary is Rs 1.11 lakh.

You invest Rs 10,000 per month in mutual funds.

Your annual NPS contribution is Rs 50,000.

You haven't mentioned any liabilities or existing savings. If you have any ongoing EMIs or debts, they should be factored in.

Key Considerations for Achieving Rs 50 Lakh Target
The speed of reaching Rs 50 lakh depends on savings rate and returns.

High savings rate is the most reliable way to accumulate wealth.

Investment returns are uncertain and depend on market conditions.

A balanced approach is necessary to ensure stability and growth.

Increasing Your Savings Rate
Currently, you are investing Rs 10,000 per month.

If you can increase it to Rs 50,000 per month, you will reach Rs 50 lakh faster.

Cutting discretionary expenses will free up more money for investments.

Consider reducing unnecessary spending on dining out, luxury items, and vacations.

Redirect bonuses, incentives, or salary hikes towards savings.

Choosing the Right Investment Instruments
Mutual Funds for Growth
Actively managed equity mutual funds can generate better returns than fixed deposits.

A mix of large-cap, mid-cap, and small-cap funds can balance risk and reward.

Mid-cap and small-cap funds have higher growth potential but also higher volatility.

Avoid index funds as they provide average returns and lack active risk management.

Debt Investments for Stability
Fixed deposits, debt mutual funds, and PPF provide stability.

These should be used for short-term parking rather than long-term growth.

Debt mutual funds are taxed based on your income tax slab.

Avoid locking too much money in low-return instruments.

Balancing Risk and Return
Investing entirely in equity mutual funds can generate high returns but comes with volatility.

A mix of 80% equity and 20% debt can provide stability.

As your target nears, shift more funds towards safer instruments.

Avoid speculation and high-risk investments like cryptocurrency.

Role of NPS in Your Goal
NPS is good for retirement but not ideal for short-term goals.

Partial withdrawal is allowed only under specific conditions.

Do not rely on NPS for your property purchase.

Managing Tax Efficiency
Equity mutual fund LTCG above Rs 1.25 lakh is taxed at 12.5%.

Short-term capital gains (STCG) are taxed at 20%.

Debt mutual fund gains are taxed as per your income slab.

Investing in tax-efficient instruments will maximize returns.

Estimating the Timeframe
If you invest Rs 50,000 per month, you can accumulate Rs 50 lakh in about 7-8 years with moderate returns.

If you invest Rs 75,000 per month, you can reach Rs 50 lakh in about 5 years.

The faster you increase your savings, the sooner you will achieve your goal.

Final Insights
Increase your monthly investment to at least Rs 50,000.

Focus on actively managed equity mutual funds.

Keep a small portion in debt for stability.

Avoid unnecessary expenses and invest salary increments.

Do not depend on NPS for this goal.

Monitor and adjust your portfolio as needed.

Stay disciplined and patient to achieve your target.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Dr Dipankar

Dr Dipankar Dutta  |1090 Answers  |Ask -

Tech Careers and Skill Development Expert - Answered on Apr 03, 2025

Dr Dipankar

Dr Dipankar Dutta  |1090 Answers  |Ask -

Tech Careers and Skill Development Expert - Answered on Apr 03, 2025

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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