I am 50 and I have approx 9cr + 2 properties worth 7 cr. All my investments atm are in equities (MF 90% (high and medium risk) and 10 % stock). One of the property price is stuck at 3.5 cr from last 10 years. Not sure if I should sell this property and put the money into stocks.
I do not need more than 1 lakh per month as I plan to retire in small town and I have a very simple life. So, if i keep aside approx 20 lakh every year and leave rest as invested, How much you think I can conveniently generate from these.
Also, do you suggest selling the property and investing this in stocks as I do not want to carry a hassle of maintaining the property and need freedom to go anywhere and live. However if I sell the property I expect 60% will come to me as black and 40% will be white. So I can only invest 50%.
Ans: Firstly, congratulations on building a substantial asset base. Your prudent investments and property holdings reflect a keen eye for financial planning. At 50, planning for a relaxed retirement in a small town is a great choice. Given your current investments and lifestyle, let’s delve into a comprehensive strategy to maximize your returns and simplify your financial life.
Understanding Your Current Financial Position
You have Rs 9 crore in equity investments and two properties worth Rs 7 crore. One of the properties has not appreciated in value for the past decade. Your equity portfolio is well-diversified with 90% in mutual funds (high and medium risk) and 10% in stocks. You aim for a monthly income of Rs 1 lakh and want to set aside Rs 20 lakh annually, leaving the rest invested.
Creating a Monthly Income Stream
To generate a monthly income of Rs 1 lakh, you need investments that offer stability and regular returns. Let’s explore how you can achieve this through a mix of investment avenues.
Systematic Withdrawal Plan (SWP) in Mutual Funds
An SWP allows you to withdraw a fixed amount regularly from your mutual fund investments. This provides a steady income while keeping the remaining corpus invested for growth. Given your substantial mutual fund holdings, an SWP can be an effective strategy. You can set up an SWP to withdraw Rs 1 lakh per month, ensuring a reliable income stream.
Debt Mutual Funds and Fixed Deposits
Consider allocating a portion of your corpus to debt mutual funds and fixed deposits. These instruments offer stability and predictable returns. Debt mutual funds can provide better post-tax returns compared to fixed deposits, making them a suitable choice for regular income.
Public Provident Fund (PPF) and Senior Citizens’ Savings Scheme (SCSS)
Although you are not a senior citizen yet, once you reach 60, SCSS can be an excellent investment for regular income. Meanwhile, you can continue contributing to your PPF account. Both these schemes offer tax benefits and secure returns, adding stability to your portfolio.
Selling the Underperforming Property
You mentioned the property valued at Rs 3.5 crore has been stagnant for a decade. Selling this property can free you from maintenance hassles and provide liquidity for better investments.
Considerations Before Selling
Before deciding to sell, weigh the potential black money issue. If 60% of the sale proceeds are in black money, it limits your reinvestment options. Ensure you understand the legal and tax implications. Consulting a legal advisor can help navigate this aspect.
Investing Sale Proceeds in Stocks
While equities offer high growth potential, investing a large lump sum at once can be risky. Market timing and volatility are significant concerns. Instead, consider a phased approach through Systematic Transfer Plans (STP) or gradually increasing your equity exposure.
Balanced Portfolio Approach
A balanced portfolio with a mix of equity, debt, and other instruments reduces risk and ensures steady returns. Given your substantial corpus, preserving capital while ensuring growth is essential. Let’s explore the components of a balanced portfolio.
Equity Investments
Continue investing in mutual funds and stocks, but with a balanced approach. Allocate a portion to large-cap and multi-cap funds for stability, and the rest to mid-cap and small-cap funds for growth. Regularly review and rebalance your equity portfolio to align with market conditions and your risk tolerance.
Debt Investments
Debt mutual funds, fixed deposits, and government schemes should form a significant part of your portfolio. These instruments provide predictable returns and safeguard against market volatility. Ensure your debt investments are diversified across different types and maturities.
Gold Investments
Gold is a good hedge against inflation and market risks. Consider allocating 5-10% of your portfolio to gold through gold ETFs or sovereign gold bonds. This adds a layer of security and diversification.
Health and Life Insurance
Ensure you have adequate health and life insurance coverage. Medical emergencies can deplete your savings, and having a robust insurance plan protects your financial stability. Life insurance ensures your loved ones are secure in case of unforeseen events.
Tax Planning
Efficient tax planning enhances your returns. Utilize tax-saving instruments and strategies to minimize your tax liability. This ensures more funds are available for investment and income generation.
Setting Up a Contingency Fund
A contingency fund covering at least six months of expenses is crucial. This fund acts as a buffer during emergencies and prevents disruptions in your financial plan. Keep this fund in liquid instruments like savings accounts or liquid mutual funds.
Phased Withdrawal Strategy
Instead of withdrawing a large amount at once, adopt a phased withdrawal strategy. This ensures your investments continue to grow while providing the required income. Review your withdrawal strategy annually to align with your financial needs and market conditions.
Final Insights
Your financial foundation is strong, and with prudent planning, you can enjoy a comfortable retirement. Selling the underperforming property can provide liquidity for better investments, but consider the black money implications carefully. A balanced portfolio approach, combining equity, debt, and gold, ensures growth and stability. Setting up a systematic withdrawal plan and having adequate insurance coverage further secures your financial future. Regularly review and adjust your financial plan to stay aligned with your goals.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
