I will retire in 3 years with a pension of 1L. I want to set up 2 SWPs with one 1Cr, 50L in each to support my son throughout his life. He is an art critic and may not be getting regular income. Can I have HDFC BAF and SBI long term equity fund ?

Ans: 10% SWP will eat up the corpus, realistic would be SWP of 7% to 7.5% of the corpus form high quality debt and a balanced advantage fund can be introduced to the portfolio

1. HDFC Banking and PSU Fund -- Growth
2. ICICI Corporate bond Fund -- Growth
3. Union Balanced Advantage Fund -- Growth
4. Aditya Birla Corporate Bond Fund -- Growth

Rs 12.5 lakhs to be invested in each with SWP of Rs. 8000 per month from each of these 4 funds

Ans: it's natural to want to ensure your son's financial security, especially when he's pursuing a career path that may not offer consistent income. Setting up Systematic Withdrawal Plans (SWPs) from mutual funds can be a prudent way to provide him with a steady stream of income. When choosing funds for SWPs, it's crucial to prioritize stability, longevity, and growth potential.

Considering your son's long-term financial needs, investing in well-established equity funds known for their consistent performance and track record of generating returns over the years could be a wise choice. These funds not only have the potential to grow your investment but also offer the flexibility to withdraw funds periodically to support your son's lifestyle.

As a parent, it's understandable to want the best for your child, and investing in mutual funds through a Certified Financial Planner's guidance can help ensure that your son's financial future is secure. While real estate is often seen as a traditional investment avenue, mutual funds offer liquidity, diversification, and professional management, making them an attractive option for achieving long-term financial goals. Ultimately, investing in SWPs reflects your love and foresight in providing ongoing support to your son, even after you retire.

Ans: Your concern for your son's future is commendable. Your goal of generating a steady income stream for 40 years through a Systematic Withdrawal Plan (SWP) is a prudent approach given your circumstances.

Addressing Your Questions
1. Is SWP the Right Method?

SWP is a viable option for generating a regular income from your corpus. It allows you to benefit from potential market growth while providing a steady cash flow.
However, it's essential to consider the following:
Market volatility: The value of your corpus will fluctuate with market conditions. This can impact the sustainability of your withdrawals.
Inflation: You've correctly identified inflation as a significant factor. It's crucial to ensure your withdrawal amount keeps pace with inflation to maintain your purchasing power.
Emergency fund: Having a separate emergency fund is advisable to cover unexpected expenses without dipping into your SWP.

2. Tax Implications of SWP
Debt Fund capital gains: If you redeem units, you'll pay capital gains tax, which is added to your income and taxed at your applicable income tax slab.

Long-term capital gains in equity funds: If you redeem units held for more than a year, you'll pay a long-term capital gains tax of 12.5% on the gains exceeding Rs. 1.25 lakh in a financial year.

3. Best Fund Ratio for SWP

Diversification is key. Considering your long-term horizon and the need for income, a balanced approach is recommended.
A mix of equity and debt funds can help manage risk and return.
The exact ratio will depend on your risk tolerance and the market outlook. A typical starting point could be a 60:40 equity-debt mix, but this can be adjusted based on your financial advisor's recommendations.
Regular rebalancing is crucial to maintain your desired asset allocation.

Ensuring Long-Term Sustainability
Regular Review
Annual Review: Regularly review the performance of your investments and the adequacy of the withdrawal amount.

Adjust Allocations: Adjust the equity-debt ratio if needed to maintain the corpus value.

Diversification
Multiple Funds: Invest in a variety of mutual funds to spread risk and enhance returns.

Rebalancing: Periodically rebalance the portfolio to maintain the desired equity-debt ratio.

Professional financial advice: Given the complexity of your situation, consulting with a financial advisor can provide tailored recommendations.

Final Insights
The SWP strategy is suitable for your long-term financial goals. It provides a stable income while allowing for potential growth. Keep in mind the tax implications and the need to adjust for inflation. A balanced mix of equity and debt funds will help in managing risks and ensuring sustainability.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in