can someone explain regarding systemic withdrawal plan? is it a guranteed return ? or is it risky

Ans: Hi Siddhartha, thanks for writing to me.

With a "Systematic Withdrawal Plan", you are instructing the mutual fund company to redeem units of a certain amount at a given frequency (say monthly, quarterly and so on) and deposit the funds to your bank account. This helps you generate regular cash flow and redeem in a planned manner.


A "Systematic Transfer Plan" is when you instruct the mutual fund company to redeem units from one scheme and invest the redemption proceeds amount in another scheme.

Ans: Hello and thanks for writing to me. As you have a corpus of Rs.50 Lakh and would want to get regular incomes from it, you can consider starting SWP's in balanced advantage funds which invest in a mix of debt and equity.

You can invest your corpus equally in:

1-ICICI Prudential Balanced Advantage Fund
2-Aditya Birla Sunlife Balanced Advantage Fund
3-LIC MF Balanced Advantage Fund
4-Tata Balanced Advantage Fund

You can begin SWP's from these schemes as per your needs.

I mention these assuming you are fine with taking some risk. If you mention your risk appetite, I may recommend some other schemes.

Ans: I understand that you want to know the best course of action regarding your ULIP (Unit Linked Insurance Plan) with Bajaj Allianz and whether to consider the new investment plan suggested to you. Let’s dive into a detailed analysis and evaluation of your situation to help you make an informed decision.

Understanding Your Current ULIP Investment
You have invested Rs. 12,500 per month in a ULIP for 10 years with a 15-year tenure. You have already invested approximately Rs. 7,80,000, and the current fund value is around Rs. 13,50,000.

Evaluating Your Current ULIP Performance
Your current ULIP has grown from Rs. 7,80,000 to Rs. 13,50,000 in five years. This indicates a significant increase, showing the potential of equity investments over a long term.

Growth Rate: The fund has shown considerable growth, reflecting the power of compounding and equity investment returns.

Flexibility: After five years, you have the flexibility to make partial withdrawals or continue with the plan.

Charges: ULIPs typically have various charges like premium allocation, policy administration, and fund management fees which can affect returns.

Options with Your Current ULIP
Now that you have completed five years, you can:

Continue with the Plan: Keep investing and let the money grow further for the next 10 years.

Partial Withdrawal: Withdraw a part of the funds while keeping the policy active.

Surrender the Policy: Exit the policy and reinvest the funds elsewhere.

Understanding the New Investment Proposal
The Bajaj Allianz representative suggested investing Rs. 5 lakhs yearly into a small-cap fund with a life-long goal plan for five years premium payment and a tenure life-long but with withdrawal options after five years.

Evaluating the New Proposal
Small-Cap Funds: These funds invest in smaller companies with high growth potential but also come with higher risk.

Premium Payment: You need to invest Rs. 5 lakhs annually for five years.

Liquidity: You can withdraw funds after five years, offering some flexibility.

Charges: ULIPs generally have higher charges compared to mutual funds.

Detailed Analysis and Recommendations
Comparing ULIPs and Mutual Funds
It’s important to understand the differences between ULIPs and mutual funds to make an informed decision.

Cost Structure: ULIPs often have higher charges compared to mutual funds. These charges can impact the overall returns.

Flexibility: Mutual funds offer more flexibility in terms of switching between funds and withdrawing investments.

Investment Goals: Small-cap funds can offer higher returns but come with higher risk. They are suitable for investors with a high-risk appetite and a long-term horizon.

Recommendations
Continue with the Current ULIP
If you are satisfied with the current growth and performance, you can continue with the existing ULIP. Since you are halfway through the premium payment term, you might want to let the investment grow further for the remaining term.

Partial Withdrawal
You can consider making a partial withdrawal if you need funds for any specific goals. This allows you to benefit from the growth while keeping the policy active.

Surrender and Reinvest
Considering the high charges of ULIPs, you might get better returns by investing in mutual funds. You can surrender the current ULIP and reinvest the funds into mutual funds for potentially higher returns.

New Investment Proposal
Investing Rs. 5 lakhs annually into a small-cap fund can be considered if you have a high-risk appetite and seek higher returns. However, ensure you understand the risks associated with small-cap funds.

Exploring Mutual Funds as an Alternative
Types of Mutual Funds
Equity Funds: Invest in stocks and aim for long-term growth. Suitable for long-term financial goals.

Debt Funds: Invest in fixed-income securities. Offer stability and regular income.

Hybrid Funds: Combine equity and debt for balanced risk and return. Ideal for moderate-risk investors.

Advantages of Mutual Funds
Diversification: Spread risk across various assets, reducing the impact of market volatility.

Professional Management: Managed by experienced fund managers who make informed investment decisions.

Liquidity: Easily redeemable, providing quick access to your funds.

Cost-Effective: Lower charges compared to ULIPs, enhancing overall returns.

Power of Compounding
Investing in mutual funds over the long term can help you benefit from the power of compounding. By reinvesting your returns, you can grow your wealth exponentially.

Long-Term Growth
Regular Investments: Making regular contributions to mutual funds can help you accumulate significant wealth over time.

Patience and Discipline: Staying invested through market cycles ensures you benefit from the long-term growth potential of equity investments.

Final Insights
Given your current financial situation and investment goals, you need to weigh the pros and cons of continuing with your current ULIP or switching to mutual funds.

Current ULIP: Continue if you are satisfied with its performance and growth potential. Consider partial withdrawal if you need funds for specific goals.

Mutual Funds: Offer better flexibility, lower charges, and higher potential returns compared to ULIPs. Suitable for long-term wealth creation.

New Proposal: Small-cap funds can offer high returns but come with higher risk. Ensure you understand the risks and your investment goals before committing.

Making informed investment decisions is crucial for achieving your financial goals. Consider consulting with a certified financial planner to tailor an investment strategy that suits your risk appetite, financial goals, and time horizon.

By evaluating your current investments, understanding your options, and considering mutual funds as a viable alternative, you can make a well-informed decision that aligns with your financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

Ans: Your decision to invest across multiple funds shows commitment to wealth creation. However, the number of funds and strategy needs some fine-tuning. A 17-fund portfolio may lead to overlap and make it harder to manage. Let’s assess the pros and suggest adjustments for optimal growth.

Key Observations
Too Many Funds Reduce Focus:
Investing in 17 funds dilutes portfolio efficiency. It also creates duplication, as many funds may hold similar stocks, especially in large-cap or flexi-cap categories.

Increased Management Difficulty:
Monitoring multiple funds is time-consuming. It becomes harder to assess performance regularly. A compact portfolio ensures better tracking and rebalancing.

Overlapping Risks:
Some funds from different categories may invest in the same companies. This reduces diversification benefits and makes the portfolio less efficient.

Short Investment Horizon:
A 3-5 year horizon is quite short, especially for equity-heavy portfolios. For maximum returns, equities perform better over 7-10 years. Consider this when planning your exit strategy.

Suggested Adjustments
Optimise Fund Selection:
Instead of investing in many funds, reduce to 7-8 high-performing ones. This makes it easier to monitor, and your returns won't get diluted.

Choose Multi-Cap and Hybrid Funds:
Multi-cap and hybrid funds offer flexibility by allocating across market caps. They also shift between equity and debt, providing better stability during volatile markets.

Avoid Category Overlap:
Too many funds in the same category (like multiple large-caps) add redundancy. Choose one or two high-quality funds from each category—large-cap, mid-cap, and small-cap.

Long-Term Benefits of Compact Portfolio
Better Performance Tracking:
With fewer funds, it's easier to track performance and make timely adjustments. You will also benefit from concentrated growth.

Higher Returns Potential:
When you hold fewer, well-chosen funds, each has a meaningful impact on the overall portfolio. Returns are less likely to get diluted by overlapping holdings.

Easy Rebalancing:
A smaller portfolio allows smoother rebalancing between equity and debt, ensuring long-term stability.

Recommended Action Plan
Review Current Holdings:
Identify the overlapping funds and remove similar ones to avoid redundancy.

Select 1-2 Funds per Category:
Keep a mix of large-cap, mid-cap, small-cap, and multi-cap funds for balanced growth.

Add Hybrid Fund for Stability:
Include one hybrid or dynamic fund to safeguard the portfolio during volatile periods.

Extend Investment Horizon:
Increase your horizon to 7-10 years for better returns from equity investments. If liquidity is a concern, plan partial withdrawals systematically.

Invest via Regular Plans:
Investing through Certified Financial Planners (CFP) and mutual fund distributors (MFDs) ensures guidance and better fund selection over time.

Taxation Awareness
Capital Gains Tax:
For equity mutual funds, long-term capital gains (LTCG) above Rs. 1.25 lakh attract 12.5% tax. Short-term capital gains (STCG) are taxed at 20%.

Debt Fund Taxation:
Both LTCG and STCG are taxed according to your income slab.

Plan your withdrawals carefully to minimise tax liabilities and maintain returns.

Final Insights
Your commitment to investing is a great step towards wealth creation. However, reducing the number of funds will streamline your portfolio and improve performance. A smaller, focused portfolio ensures better returns with less management hassle. Also, extending your investment horizon will unlock the full potential of equity growth.

Invest through regular funds with professional guidance, ensuring you receive ongoing support from your CFP or MFD. Finally, stay invested for the long term to achieve your financial goals confidently.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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