Assuming 12% return annually on lumpsum investment of 25 lakhs, I want to start SWP on 26000 monthly for 30 years. What would be the best funds to go for and what other factors do I need to consider while making the final decision ?
Ans: strategy:
Choosing Mutual Funds for SWP:
While a 12% annual return assumption can be used for initial calculations, achieving that consistently over 30 years is difficult. Here's a framework to select funds for your SWP:
Asset Allocation: Consider your age, risk tolerance, and financial goals. A balanced portfolio with equity and debt funds is recommended for SWP. For example, a 60% equity and 40% debt allocation might be suitable.
Equity Funds: Large-cap or multi-cap funds can provide a good balance of growth and stability. Look for funds with a good track record, low expense ratios, and diversification across sectors.
Debt Funds: Debt funds like short-term or income funds can provide regular income and stability to your SWP withdrawals. Consider factors like credit quality of the underlying investments and maturity of the debt instruments.
Here's a suggestive asset allocation, but consult a financial advisor for personalization:
Equity Funds (60%): Invest in 2-3 well-diversified equity funds (large-cap or multi-cap) with a proven track record.
Debt Funds (40%): Invest in 1-2 debt funds (short-term or income) with good credit quality and suitable maturity profile to meet your monthly withdrawal needs.
Other Factors to Consider:
Investment Horizon: 30 years is a long time. Your asset allocation might need adjustments as you near retirement and your risk tolerance changes.
Inflation: A 12% return assumption might not fully outpace inflation. Consider a slightly higher return expectation to maintain purchasing power over time.
Tax Implications: Consult a tax advisor to understand the tax implications of SWPs, especially capital gains taxation on redeemed units.
Review and Rebalance: Periodically review your portfolio performance (at least annually) and rebalance if needed to maintain your desired asset allocation.
Contingency Planning: Factor in potential emergencies or fluctuations in income. Maintain an adequate contingency fund outside your SWP.
Remember: This is general information, and you should consult a qualified financial advisor for personalized investment advice tailored to your specific financial situation and risk tolerance. They can help you choose the right mutual funds, create a comprehensive SWP strategy, and consider all the relevant factors for your 30-year investment journey.
