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Ramalingam Kalirajan |10881 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on May 13, 2024

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

Question by Arvind on May 12, 2024Hindi

Sir,What amount I should investin SWP Equity to get monthly Rs 300000. I am retired n 62 years old.Are monthly withdrawals from SWP taxable.I have another idea.If I put my monthly income from Bank FD in monthly SIP,will it be beneficial?

Ans: Given your situation, I understand the importance of securing a stable income post-retirement. First, let me commend you on your proactive approach towards financial planning at this stage of life. It's crucial to ensure that your investments align with your financial goals and risk tolerance.

For generating a monthly income of Rs 300,000 through Systematic Withdrawal Plan (SWP) in equity, it's prudent to evaluate various factors. Considering your age and risk profile, investing entirely in equity might not be advisable. While equities offer potential for growth, they also come with higher volatility.

An alternative approach would be to adopt a balanced investment strategy, allocating a portion of your portfolio to equity and the rest to less volatile instruments like debt or hybrid funds. This can help mitigate risk while aiming for consistent returns.

Regarding the taxation of SWP withdrawals, equity-oriented mutual funds held for over a year are subject to Long-Term Capital Gains Tax (LTCG) of 10% exceeding Rs 1 lakh per annum. However, withdrawals up to Rs 1 lakh are exempt from LTCG tax. For withdrawals within this limit, only Dividend Distribution Tax (DDT) is applicable.

Now, let's address your idea of investing your monthly income from Bank FD into SIPs. While SIPs offer the benefit of rupee cost averaging and disciplined investing, relying solely on them may not be optimal.

Bank FDs typically offer lower returns compared to equity investments, especially considering inflation. By diversifying your investments across different asset classes, you can potentially enhance returns and manage risk more effectively.

However, it's crucial to consult with a Certified Financial Planner (CFP) to tailor an investment strategy that aligns with your financial objectives, risk appetite, and time horizon. A CFP can help you navigate through various investment options and craft a holistic financial plan that suits your needs.

In conclusion, while SWP in equity can provide a steady income stream, it's essential to diversify your portfolio and consider taxation implications. Additionally, exploring investment avenues beyond Bank FDs can help optimize returns over the long term.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Asked on - May 13, 2024 | Answered on May 18, 2024

Very nice advice by you Sir,I really appreciate your approach to help the invester whatever his financial standing is. Actually I made a mistake in monthly Withdrawal amount as 300000 instead of Rs 30000. Please give me rough idea about the amount one should investin Balanced SWP fund to get rs 30000 per month

Ans: Systematic Withdrawal Plan (SWP):

Determining Investment Amount: The amount you need to invest in an SWP to get Rs. 30,000 monthly depends on various factors like:

Current corpus in the mutual fund scheme
Expected rate of return
Investment tenure (how long you plan to withdraw monthly)
Taxation on SWP Withdrawals: Yes, withdrawals from SWP are generally taxable.

Short-term Capital Gains (STCG): If you invested in the fund within the last year, withdrawals are taxed at your income tax slab rate.
Long-term Capital Gains (LTCG): If you invested for over a year in equity funds, gains exceeding Rs. 1 lakh per year are taxed at 10%.
Alternative: Monthly SIP from FD Income:

Potential Benefit: Investing your monthly FD income in SIPs can be beneficial for long-term wealth creation. Equity markets have the potential for higher returns compared to FDs. Actively managed funds involve experienced fund managers who try to pick stocks to outperform the market. Actively managed funds come with higher fees compared to passively managed funds.

Important Consideration: SIPs are for long-term investment horizons (typically 5+ years). Equity markets can be volatile in the short term.

Recommendation:

Consult a Certified Financial Planner (CFP): A CFP can analyze your situation, risk tolerance, and retirement goals. They can recommend the right investment approach (SWP or SIP) and suggest suitable mutual fund schemes.
Here's a quick example (not a recommendation):

Current Corpus: Rs. 50 lakh
Expected Return: 8%
Investment Tenure: 15 years
Based on these assumptions, you might need to invest a larger amount in an SWP to generate Rs. 30,000 monthly. However, this is a simplified example, and a CFP can provide a more accurate calculation.

Remember:

Focus on Long Term: Prioritize a long-term investment horizon for SIPs.
Tax Implications: Understand the tax implications of SWP withdrawals.
Professional Guidance: Consulting a CFP is recommended for a personalized retirement plan.
By consulting a CFP, you can develop a strategy that meets your income needs and maximizes your retirement savings!
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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