Can you suggest SWP is better than MIS in Bank/Post office

Ans: You primarily have the following four major options for investment as a senior citizen which differ from each other in the way they work. Their important characteristics are given below. If you wish to know more, they are readily available with just a bit of googling:-

1. Senior Citizen Savings Scheme (SCSS). A 5-year scheme, extendable by 3 more years, Maximum investment allowed is Rs 15 Lakhs. Only persons with age 60 and above can invest in it, with the exception of armed forces retired personnel where this limit is 50 years. Current rate of interest is 8% payable on a quarterly basis. Available through Post Office and select banks.

2. Post office Monthly Income scheme (POMIS). A 5-year scheme. Maximum investment allowed is Rs 4.5 Lakhs. Applicable for any adult. Current rate of interest is 7.1% payable on a monthly basis. Available through Post Office only.

3. Pradhan Mantri Vaya Vandana Yojana (PMVVY). It is an insurance policy-cum-pension scheme launched by Govt of India and administered through Life Insurance Corporation (LIC). Its current rate of interest is 8%, minimum entry age 60 years, duration of 10 years, and maximum amount allowed is Rs 15 Lakhs.

4. Bank FDs. Available with all the banks with a choice of tenures. Minimum deposit amount and rate of interest vary from bank to bank. Current rates of interest in State Bank of India for senior citizens are 7.25% for a 1-2 year deposit. Other banks are also similarly placed.

If you want to know more about such options, please go to the link https://www.indiapost.gov.in/Financial/pages/content/post-office-saving-schemes.aspx where further details and more such post office schemes are given out.

Ans: It depends on your planning. Pls reach out to your financial planner,

Ans: Hello Value Investor. Kindly quantify your investment constraints

Ans: Choosing the right mutual fund for a Systematic Withdrawal Plan (SWP) can have a significant impact on your financial goals. There is a misconception that banks themselves offer SWPs, but in reality, banks provide mutual funds through their subsidiaries, like SBI Mutual Fund or Canara Robeco Mutual Fund. These mutual funds, managed by banks, operate similarly to private company mutual funds.

Here’s a comparison between bank-based mutual funds (such as SBI, Canara, etc.) and private mutual funds (Parag Parikh, Birla, Franklin, Bajaj etc.) for setting up an SWP:

1. Return on Investment
Bank-Based Mutual Funds: These funds are often perceived as safer due to their association with large, reputed banks. However, they offer returns comparable to private mutual funds based on the underlying scheme (equity, debt, hybrid). There’s no direct relationship between the bank's stability and the fund's performance.

Private Mutual Funds: Private mutual funds can offer equally competitive or even higher returns, especially if they have strong fund managers and better-performing schemes. Fund performance depends on the market strategy and the expertise of the fund managers rather than the ownership.

Both bank-based and private mutual funds offer similar returns if they invest in comparable categories (equity, debt, hybrid). However, private funds may be more aggressive in their approach, potentially offering higher returns in certain categories.

2. Fund Management and Expertise
Bank-Based Mutual Funds: These funds might be perceived as conservative due to their backing by public-sector banks. However, fund management expertise may vary. These funds do not automatically outperform private mutual funds just because they are associated with a bank. For example, SBI and Canara Robeco have some good-performing schemes, but not all funds are top performers.

Private Mutual Funds: Private mutual funds often have a more flexible approach to fund management, which allows them to be more responsive to market conditions. Fund managers in private mutual funds are incentivized to actively manage and outperform benchmarks, which could result in better long-term results.

3. Risk and Security
Bank-Based Mutual Funds: Investors often believe that mutual funds from banks are more secure, but this is a misconception. Whether a mutual fund is managed by a bank or a private company, it is regulated by SEBI. The safety of your investment depends on the asset allocation and not the ownership of the fund house.

Private Mutual Funds: Private mutual funds are equally regulated and offer the same level of security as bank-based mutual funds. The key is to choose funds based on your risk tolerance and investment horizon, not based on whether a bank or private entity manages the fund.

4. Track Record and Performance
Bank-Based Mutual Funds: Funds like SBI and Canara Robeco have a long track record. Some of their schemes have performed well over time, especially in the large-cap and hybrid categories. However, not all bank-based mutual funds are top performers, and past performance doesn’t guarantee future returns.

Private Mutual Funds: Private fund houses like HDFC, ICICI, and Aditya Birla have equally strong or sometimes even better track records. Many private mutual funds have consistently ranked at the top due to better fund management strategies, diversification, and quicker adaptation to market changes.

5. SWP Flexibility and Features
Bank-Based Mutual Funds: These funds offer the same SWP features as private mutual funds. You can set up systematic withdrawals in equity, debt, or hybrid schemes. The flexibility in the withdrawal amount, frequency, and customization is similar to what private funds offer. There is no real difference in terms of SWP flexibility between the two.

Private Mutual Funds: Like bank-based funds, private mutual funds also offer great flexibility when it comes to SWPs. You can customize the withdrawal amount and frequency based on your requirements. The key difference comes from the fund performance rather than the SWP mechanism.

6. Taxation and Costs
The tax treatment for SWPs from bank-based mutual funds is the same as private mutual funds.

7. Brand Perception and Investor Confidence
Bank-Based Mutual Funds: Investors often feel more confident investing in bank-based mutual funds because of the trust associated with established public-sector banks like SBI and Canara. This can lead to a perception of safety, even though mutual fund investments are subject to market risks regardless of the fund house.

Private Mutual Funds: Private mutual funds, on the other hand, may not have the same level of brand recognition among conservative investors. However, private fund houses have been known to produce some of the best-performing funds in the market. Investor confidence should be based on the track record and performance rather than brand perception.

8. Overlap and Diversification
Whether you invest in a bank-based or private mutual fund, it’s important to look at the overlap between the funds in your portfolio. If too many funds invest in the same underlying assets (high overlap), your diversification efforts may be compromised.

Ensure that you choose funds with low overlap to maximize diversification, whether they are from bank-based or private mutual fund houses.

Final Insights
Bank-based mutual funds like SBI and Canara offer the same features as private mutual funds like Birla, Franklin, Bajaj and others when it comes to setting up an SWP.

The decision between bank-based and private mutual funds should depend more on the fund’s performance, management style, and your investment goals, rather than the ownership of the mutual fund.

Check the track record and the overlap ratio of funds you are considering, regardless of whether they are bank-based or private.

For tailored guidance, consider consulting with a Certified Financial Planner (CFP) or Mutual Fund Distributor (MFD) to ensure your SWP strategy aligns with your overall financial goals.

Best Regards,

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