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How can a 35-year-old single man invest in a Shariah-compliant fund for a monthly income of 10k or less?

Ramalingam Kalirajan |8058 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Feb 27, 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

Question by Fauzia on Feb 16, 2025Hindi

What is the best way to invest in any a shariyah compliant fund so that I get an income of 10 or less k per month

Ans: To invest in a Shariyah-compliant fund and generate a steady income of Rs. 10,000 or less per month, you need to structure your investment wisely. Below is a detailed 360-degree approach to achieve this goal.

Understanding Shariyah-Compliant Funds
Shariyah-compliant funds follow Islamic finance principles.
These funds avoid investments in businesses related to alcohol, gambling, banking, and other non-permissible sectors.
They focus on ethical investing with transparency.
They do not allow interest-based earnings and follow profit-sharing models.
Selecting the Right Investment Option
Actively Managed Mutual Funds
Actively managed funds provide better returns than index funds due to professional fund management.
These funds have a dynamic approach to stock selection, ensuring optimal performance.
They can help generate a steady withdrawal amount with better compounding.
Systematic Withdrawal Plan (SWP)
SWP helps in withdrawing a fixed monthly income from your investment.
It allows flexibility to withdraw only what you need, keeping your capital intact.
It is tax-efficient, as long-term capital gains (LTCG) up to Rs. 1.25 lakh per year are tax-free.
Withdrawals can be structured for Rs. 10,000 per month or lower, as needed.
Why Not Index Funds?
Index funds lack flexibility as they passively track an index.
Actively managed funds outperform index funds in the long term, due to professional stock selection.
In volatile markets, index funds may not protect downside risks as well as actively managed funds.
They follow fixed sector allocations, which may not align with Shariyah-compliant investing.
Fund managers in actively managed funds can adjust holdings to avoid non-compliant stocks.
Avoid Direct Mutual Funds
Direct funds require self-management, which may not suit long-term investors seeking a steady income.
Investing through a Certified Financial Planner (CFP) and a Mutual Fund Distributor (MFD) ensures better decision-making.
Regular plans offer professional guidance and better portfolio management.
A Certified Financial Planner can help with portfolio rebalancing for better performance.
Investment Strategy for a Monthly Income
Lump Sum Investment in a Balanced Portfolio
A balanced portfolio ensures steady returns with risk control.
Invest in actively managed equity funds for long-term growth.
Keep a portion in debt funds to maintain stability and liquidity.
Allocate funds to Shariyah-compliant hybrid mutual funds for steady returns.
SWP to Generate Rs. 10,000 or Less Per Month
Start an SWP in a Shariyah-compliant fund after building the corpus.
Withdraw a small amount monthly to maintain the longevity of the investment.
Avoid withdrawing too much to prevent capital erosion.
Why Not Fixed Deposits or Annuities?
Fixed deposits offer low returns that may not beat inflation.
Annuities lock your money, and returns are taxable as per slab rates.
Mutual funds provide better flexibility and tax efficiency for long-term income.
Risk Management and Diversification
Keep a mix of asset classes to balance risk.
Diversify within Shariyah-compliant stocks across sectors.
Rebalance periodically to maintain growth and stability.
A Certified Financial Planner can optimize the portfolio based on market conditions.
Taxation Considerations
Equity mutual fund withdrawals are tax-efficient compared to FDs and annuities.
LTCG above Rs. 1.25 lakh is taxed at 12.5%.
STCG is taxed at 20%.
A well-structured SWP ensures minimum tax liability.
Regular Monitoring and Adjustments
Monitor the fund’s performance every 6 months.
Increase or decrease the withdrawal amount based on market conditions.
Consult a Certified Financial Planner for ongoing adjustments.
Final Insights
Shariyah-compliant funds provide ethical investing opportunities.
An SWP in a balanced portfolio ensures steady income without capital depletion.
Avoid index funds, direct mutual funds, and annuities.
Maintain a well-diversified approach to manage risk.
Regular monitoring is key to maintaining consistent returns.
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.